A DISSERTATION REPORT

ON

“A Study on Analyzing the Trend of NPA Level in Private

Sector Banks and Public Sector Banks”

BY

SONALI RAM NALAWADE

Under the guidance of

Prof. T. SHRINIVAS

Submitted to

UNIVERSITY OF PUNE

In partial fulfilment of the requirement for the award of the degree of

MASTERS OF BUSINESS ADMINISTRATION (MBA)

YEAR 2016-2018

Through

Institute Of Business Management & Research,

Block “C”, Chinchwad, Pune.

[1]
 DECLARATION

I, the undersigned hereby declare that I have successfully completed this dissertation entitled

“A Study on Analyzing the Trend of NPA Level in Private Sector Banks and Public
Sector Banks” for the academic year 2016-2018

submitted by me to the Audyogik Shikshan Mandals’s, Institute Of Business Management &

Research, affiliated to Savitribai Phule Pune University,

Pune, in partial fulfilment of requirement for the award of degree of Master of Business

Administration (MBA) under the guidance of Prof. T. Srinivas.

All analysis in this report is my original work and the conclusions drawn therein are based on
information collected by me.

Place: - Pune

Date: - Sonali Ram Nalawade

[2]
 ACKNOWLEDGEMENT

I hereby take the opportunity to express my gratitude towards those who have made great
contribution of this project “A Study on Analyzing the Trend of NPA Level in Private
Sector Banks and Public Sector Banks”. It provided a learning ground in terms of industry
exposure and the practical application of research methodology in the industry.

First of all I would like to thank Savitribai Phule Pune University for providing me an
opportunity to undertake a dissertation as partial fulfilment of degree of MBA.

I would like to thank my project guide Prof T. Srinivas valuable guidance and encouragement

at every stage of the project helped me to prepare this report successfully.

[3]
 INDEX

Sr No. PARTICULARS PAGE NO.

1 Introduction to the Topic 41275

2 Executive Summary

3 Literature Review 14-17

4 Objective & Scope 18-19

5 Research Methodology 20-21

6 Data analysis & Interpretation 22-34

7 Suggestions 35-37

8 Conclusion 38-39

9 Reference & Bibliography 40-41

[4]
Sr No. PARTICULARS PAGE NO.

1 Classification Of Loan Assets Of Public Sector Banks 24

2 Classification Of Loan Assets Of Private Sector Banks 25

3 Composition Of NPAs Of Nationalized Banks - 2011 To 2016 26

4 Composition Of NPAs Of SBI Group- 2011 To 2016 27

5 Composition Of NPAs Of Public Sector Banks - 2011 To 2016 29

Banks Group-Wise Gross Non-Performing Assets, Gross

6 30
Advances And Gross NPA Ratio Of Public Sector Banks-2016

Banks Group-Wise Gross Non-Performing Assets, Gross

7 31
Advances And Gross NPA Ratio Of Private Sector Banks-2016

8 Banks With Highest NPA’S Against Total Debt 32

9 Banks With Highest NPA'S Gross 33

10 Sector Wise Stressed Assets 34

[5]
INTRODUCTION TO THE TOPIC

[6]
 Abstract

A healthy and a sound banking system are very essential for an economy in order to grow and
remain in this competitive environment. RBI and other regulatory bodies have taken several
policies in the light of developing the functioning of the banking sector. The best indicator for
the health of the banking industry in a country is its level of Non-performing assets (NPAs).
It reflects the performance of banks. NPAs in the Indian banking sector have become a major
concern for the Indian economy. NPA has a direct impact on the profitability, liquidity and
solvency position of the bank. Higher NPA indicates inefficiency of the bank and lower NPA
indicate better performance and management of funds. To improve the efficiency and
profitability of banks the NPA need to be reduced and controlled. This dissertation basically
deals with the trends of NPA in banking industry, the factors that mainly contribute to NPA
raising in the banking industry and also provides some suggestions how to overcome this
burden of NPA on banking industry.

[7]
 INTRODUCTION

The Banking system remains, as always the most dominant segment of the financial sector.
Without a sound and effective Banking system in India it cannot have a healthy economy.
The Banking system of India should not only be hassle free but it should be able to meet new
challenges posed by the technology or any other external and internal factors. Indian Banks
continue to build on their strength under the regulators watchful eye and hence has emerged
stronger. For the past three decades India's Banking system has several outstanding
achievements to its credit. The most striking is its extensive reach. It is no longer confined to
only metropolitans or cosmopolitans in India. In fact, Indian Banking system has reached
even to the remote corners of the country. This is one of the main reasons of India's growth
process. The government's regular policy for Indian Bank since 1969 has paid rich dividends
with the nationalization of 14 major private Banks of India. Not long ago, an account holder
had to wait for hours at the Bank counters for getting a draft or for withdrawing his own
money. Today, he has a choice. Gone are days when the most efficient Bank transferred
money from one branch to other in two days. Now it is simple as instant messaging ordials a
pizza. Money has become the order of the day.

[8]
NON-PERFORMING ASSETS OF PUBLIC AND PRIVATE SECTOR BANKS

The quality of Indian banks’ assets is likely to deteriorate over the next two years. This will
be driven by the slowdown in the economy, and by the aging of loans made in recent years.
The NPAs are considered as an important parameter to judge the performance and financial
health of banks. The level of NPAs is one of the drivers of financial stability and growth of
the banking sector. The Financial companies and institutions are nowadays facing a major
problem of managing the Non-Performing Assets (NPAs) as these assets are proving to
become a major setback for the growth of the economy. NPAs in simple words may be
defined as the borrower does not pay principal and interest for a period of 180 days.
However, it is taken into consideration now that default status would be given to a borrower
if dues are not paid for 90 days. If any advance or credit facility granted by the bank to a
borrower becomes non-performing, then the bank will have to treat all the advances/credit
facilities granted to that borrower as non-performing without having any regard to the fact
that there may still exists certain advances / credit facilities having performing status.

ASSET CLASSIFICATION/CATEGORIES OF NPAS

STANDARD ASSETS:
Standard assets are the ones in which the bank is receiving interest as well as the principal
amount of the loan regularly from the customer. Here it is also very important that in this case
the arrears of interest and the principal amount of loan do not exceed 90 days at the end of
financial year. If asset fails to be in category of standard asset that is amount due more than
90 days then it is NPA and NPAs are further need to classify in sub categories. Banks are
required to classify non-performing assets further into the following three categories based on
the period for which the asset has remained non-performing and there liability of the dues:

[9]
SUB-STANDARD ASSETS

With effect from 31 March 2005, a sub standard asset would be one, which has remained
NPA for a period less than or equal to 12 month. The following features are exhibited by sub
standard assets: the current net worth of the borrowers / guarantor or the current market value
of the security charged is not enough to ensure recovery of the dues to the banks in full; and
the asset has well-defined credit weaknesses that jeopardize the liquidation of the debt and
are characterized by the distinct possibility that the banks will sustain some loss, if
deficiencies are not corrected.

DOUBTFUL ASSETS
A loan classified as doubtful has all the weaknesses inherent in assets that were classified as
sub-standard, with the added characteristic that the weaknesses make collection or liquidation
in full, – on the basis of currently known facts, conditions and values – highly questionable
and improbable. With effect from March 31, 2005, an asset would be classified as doubtful if
it remained in the sub-standard category for 12 months.

LOSS ASSETS
A loss asset is one which considered uncollectible and of such little value that its continuance
as a bankable asset is not warranted- although there may be some salvage or recovery value.
Also, these assets would have been identified as ‘loss assets’ by the bank or internal or
external auditors or the RBI inspection but the amount would not have been written-off
wholly.

[10]
FACTORS FOR RISE IN NPAS

The banking sector has been facing the serious problems of the rising NPAs. But the problem
of NPAs is more in public sector banks when compared to private sector banks and foreign
banks. The NPAs in PSB are growing due to external as well as internal factors.

EXTERNAL FACTORS

- Ineffective Recovery
The Govt. has set of numbers of recovery tribunals, which works for recovery of loans and
advances. Due to their negligence and ineffectiveness in their work the bank suffers the
consequence of non-recover, their by reducing their profitability and liquidity.

- Wilful Defaults
There are borrowers who are able to pay back loans but are intentionally withdrawing it.
These groups of people should be identified and proper measures should be taken in order to
get back the money extended to them as advances and loans.

- Natural Calamities
This is the measure factor, which is creating alarming rise in NPAs of the PSBs. every now
and then India is hit by major natural calamities thus making the borrowers unable to pay
back there loans. Thus the bank has to make large amount of provisions in order to
compensate those loans, hence end up the fiscal with a reduced profit.

- Industrial Sickness
Improper project handling , ineffective management , lack of adequate resources , lack of
advance technology , day to day changing govt. Policies give birth to industrial sickness.

[11]
Hence the banks that finance those industries ultimately end up with a low recovery of their
loans reducing their profit and liquidity.

- Lack of Demand
Entrepreneurs in India could not foresee their product demand and starts production which
ultimately piles up their product thus making them unable to pay back the money they borrow
to operate these activities. The banks recover the amount by selling of their assets, which
covers a minimum label. Thus the banks record the non recovered part as NPAs and has to
make provision for it.

- Change on Govt. Policies

With every new govt. banking sector gets new policies for its operation. Thus it has to cope
with the changing principles and policies for the regulation of the rising of NPAs.

INTERNAL FACTORS

- Defective Lending Process

There are three cardinal principles of bank lending that have been followed by the
commercial banks since long.
i. Principle of safety
ii. Principle of liquidity
iii. Principle of profitability

- Inappropriate Technology
Due to inappropriate technology and management information system, market driven
decisions on real time basis cannot be taken. Proper MIS and financial accounting system is
not implemented in the banks, which leads to poor credit collection, thus NPAs. All the
branches of the bank should be computerized.

[12]
- Improper SWOT Analysis
The improper strength, weakness, opportunity and threat analysis is another reason for rise in
NPAs. While providing unsecured advances the banks depend more on the honesty, integrity,
and financial soundness and credit worthiness of the borrower.

- Poor Credit Appraisal System

Poor credit appraisal is another factor for the rise in NPAs. Due to poor credit appraisal the
bank gives advances to those who are not able to repay it back. They should use good credit
appraisal to decrease the NPAs.

- Managerial Deficiencies
The banker should always select the borrower very carefully and should take tangible assets
as security to safe guard its interests. When accepting securities banks should consider the:
1. Marketability
2. Acceptability
3. Safety
4. Transferability.
The banker should follow the principle of diversification of risk based on the famous maxim
“do not keep all the eggs in one basket”, it means that the banker should not grant advances
to a few big farms only or to concentrate them in few industries or in a few cities. If a new
big customer meets misfortune or certain traders or industries affected adversely, the overall
position of the bank will not be affected.

- Absence of Regular Industrial Visit

[13]
The irregularities in spot visit also increases the NPAs. Absence of regularly visit of bank
officials to the customer point decreases the collection of interest and principals on the loan.
The NPAs due to wilful defaulters can be collected by regular visits.

Table I: PROVISIONAL NORMS

Asset Classification Provision requirements

Standard assets a) direct advances to agricultural & SME sectors

at0.25 per cent;

(b) residential housing loans beyond Rs. 20 lakh at

1per cent;

(c) advances to specific sectors, i.e., personal

loans(including credit card receivables), loans and
advances qualifying as Capital Market exposures,
Commercial Real Estate loans etc. at 2 per cent

(d) all other advances not included in (a), (b) and

(c)above, at 0.40 percent

Substandard Assets 10 per cent of the total out standings for substandard

Doubtful Assets 100% to the extent of deficit

(deficit=advance-security)

(i)Doubtful upto 1 yr( NPA more than 2 yrs but 20% of tangible security available.
upto 3 yrs)

(ii)Doubtful for more than 1 yr but upto 3 yrs( 30% of tangible security available.
NPA more than 3 yrs but upto 5 yrs)

(iii)Doubtful for more than 3 yr(NPA

more than 5 yrs 50% of tangible security available

Loss assets 100% of the outstanding

[14]
[15]
LITERATURE REVIEW

[16]
Many published articles are available in the area of non-performing assets and a large number

of researchers have studied the issue of NPA in banking industry. A review of the relevant

literature has been described. Kumar (2013) in his study on A Comparative study of NPA of

Old Private Sector Banks and Foreign Banks has said that Non-performing Assets (NPAs)

have become a nuisance and headache for the Indian banking sector for the past several years.

One of the major issues challenging the performance of commercial banks in the late 90s

adversely affecting was the accumulation of huge non-performing assets (NPAs). Selvarajan

& Vadivalagan (2013) in A Study on Management of Non-Performing Assets in Priority

Sector reference to Indian Bank and Public Sector Banks (PSBs) find that the growth of
Indian

Bank’s lending to Priority sector is more than that of the Public Sector Banks as a whole.

Indian Bank has slippages in controlling of NPAs in the early years of the decade. Singh

(2013) in his paper entitled Recovery of NPAs in Indian commercial banks says that the
origin

of the problem of burgeoning NPA’s lies in the system of credit risk management by the
banks.

Banks are required to have adequate preventive measures in fixing pre- sanctioning appraisal

responsibility and an effective post-disbursement supervision. Banks should continuously

monitor loans to identify accounts that have potential to become non- performing. Gupta

(2012) in her study A Comparative Study of Non-Performing Assets of SBI & Associates &

Other Public Sector Banks had concluded that each bank should have its own independence

credit rating agency which should evaluate the financial capacity of the borrower before
credit

facility and credit rating agencies should regularly evaluate the financial condition of the

[17]
clients. Rai (2012) in her study on Study on performance of NPAs of Indian commercial
banks

find out that corporate borrowers even after defaulting continuously never had the fear of
bank

taking action to recover their dues. This is because there was no legal framework to safeguard

the real interest of banks. Chatterjee C., Mukherjee J. and Das (2012) in their study on

Management of non-performing assets - a current scenario has concluded that banks should

find out the original reasons/purposes of the loan required by the borrower. Proper

identification of the guarantor should be checked by the bank including scrutiny of his/her

wealth. Kaur K. and Singh B. (2011) in their study on Non-performing assets of public and

private sector banks (a comparative study) studied that NPAs are considered as an important

parameter to judge the performance and financial health of banks. The level of NPAs is one
of

the drivers of financial stability and growth of the banking sector. Prasad G.V.B. and Veena

(2011) in their study on NPAs Reduction Strategies for Commercial Banks in India stated

that the NPAs do not generate interest income for banks but at the same time banks are

required to provide provisions for NPAs from their current profits, thus NPAs have
destructive

impact on the return on assets in the following ways. Chaudhary K. and Sharma M. (2011) in

their research stated that An efficient management information system should be developed.

The bank staff involved in sanctioning the advances should be trained about the proper

documentation and charge of securities and motivated to take measures in preventing

advances

turning into NPA. Karunakar (2008), in his study Are non - Performing Assets Gloomy or

Greedy from Indian Perspective, has highlighted problem of losses and lower profitability of

[18]
Non- Performing Assets (NPA) and liability mismatch in Banks and financial sector depend
on how various risks are managed in their business. The lasting solution to the problem of
NPAs

can be achieved only with proper credit assessment and risk management mechanism. Bhatia

(2007) in his research paper explores that NPAs are considered as an important parameter to

judge the performance and financial health of banks. The level of NPAs is one of the drivers
of

financial stability and growth of the banking sector. Kaur (2006) in her thesis titled Credit

management and problem of NPAs in Public Sector Banks, suggested that for effective

handling of NPAs, there is an urgent need for creating proper awareness about the adverse

impact of NPAs on profitability amongst bank staff, particularly the field functionaries.

Bankers should have frequent interactions and meeting with the borrowers for creating better

understanding and mutual trust. Balasubramaniam C.S. (2001) highlighted the level of NPAs
is

high with all banks currently and the banks would be expected to bring down their NPA. This

can be achieved by good credit appraisal procedures, effective internal control systems along

with their efforts to improve asset quality in their balance sheets.

[19]
OBJECTIVES & SCOPE OF THE
STUDY

[20]
 Objectives of the study:

1 .To find out trend in NPA level

2. To find out the factors that contributes to NPA.

3. To suggest the various measures for proper management of NPA in banks.

Scope of the Study:

The present study is descriptive in nature. This study was mainly planned to evaluate the
NPA level of public sector and private sector Bank. This research study surely will provide a
parameter particular for a better understanding of NPA level in banking sector. This attempt
covers the extensive research work on NPA structure of the Indian Banking sector. The
findings of study present a comparison between selected variables for the past six years.

[21]
RESEARCH METHODOLOGY

[22]
 Research Methodology:
The study is planned to be carried out with the help of secondary data for the purpose to and
understand the NPA level of private and public sector Banks.

Data Collection:
The present study is mainly based on secondary data. The required data were collected from
the annual reports of the Banks through their websites.

Sources of Data:
Secondary data was collected from the reports, articles, journals, documents, printed
literatures, certain web sites and other online data bases etc.

[23]
DATA ANALYSIS & INTERPRETATION

[24]
CLASSIFICATION OF LOAN ASSETS OF PUBLIC SECTOR BANKS -
2012 TO 2017

Public Sector Banks

100.00%

80.00%

60.00%

40.00%

20.00%

0.00%
2012 2013 2014 2015 2016 2017
Standard advances Percent 97.67% 97.90% 97.72% 97.68% 96.83% 96.16%
Sub-Standard Advances Percent 0.99% 0.93% 1.10% 1.10% 1.70% 1.89%
Doubtful Advances Percent 1.13% 0.99% 0.98% 1.04% 1.33% 1.81%

Standard advances Percent Sub-Standard Advances Percent Doubtful Advances Percent

Bank group/Year Standard advances Sub-Standard Advances Doubtful Advances

Public Sector Banks Percent Percent Percent
2012 97.67% 0.99% 1.13%
2013 97.90% 0.93% 0.99%
2014 97.72% 1.10% 0.98%
2015 97.68% 1.10% 1.04%
2016 96.83% 1.70% 1.33%
2017 96.16% 1.89% 1.81%

The above table shows classification of loan assets of the Public sector banks. Over the years
we can see fluctuation of NPAs among the banks both increase and decrease. In case of
standard asset there was a constant increase from 2012 to 2014 and then a slight decrease
from 2015. In case of sub standard asset, for public sector banks it kept on increasing. In case
of doubtful asset, public sector banks there were a constant increase.

[25]
 CLASSIFICATION OF LOAN ASSETS OF PRIVATE SECTOR

BANKS - 2012 TO 2017

Private Sector Banks

100.00%

80.00%

60.00%

40.00%

20.00%

0.00%
2012 2013 2014 2015 2016 2017
Standard advances Percent 97.25% 96.75% 97.03% 97.55% 97.92% 98.09%
Sub-Standard Advances Percent 1.54% 2.02% 1.48% 0.60% 0.58% 0.56%
Doubtful Advances Percent 0.94% 0.96% 1.12% 1.46% 1.17% 1.06%

Standard advances Percent Sub-Standard Advances Percent Doubtful Advances Percent

Bank group/Year Standard advances Sub-Standard Advances Doubtful Advances

Private Sector Banks Percent Percent Percent
2012 97.25% 1.54% 0.94%
2013 96.75% 2.02% 0.96%
2014 97.03% 1.48% 1.12%
2015 97.55% 0.60% 1.46%
2016 97.92% 0.58% 1.17%
2017 98.09% 0.56% 1.06%

The above table shows classification of loan assets of the Private sector banks. Over the years
we can see fluctuation of NPAs among the banks both increase and decrease. In case of
standard asset there was a constant increase from 2013 to 2016. In case of sub standard asset,
for private sector banks it kept on decreasing except in 2012. In case of doubtful asset, private
sector banks there were a constant increase from 2012 to 2014 and gradually decreased in
2015 and 2016.

[26]
Compared to Private sector banks, Public sector banks NPAs level is more in case of sub
standard asset and doubtful asset. But in case of standard asset private sector banks remain
high which shows a good position of private sector banks and also it show that they have
adopted all necessary measures in order to avoid any account becoming NPAs. Public sector
banks need to be more cautions while granting loan and also to avoid the occurrence of NPA
in public sector banks.

COMPOSITION OF NPAs OF NATIONALIZED BANKS - 2012 TO 2017

Nationalized Banks
100.00%

80.00%

60.00%

40.00%

20.00%

0.00%
2012 2013 2014 2015 2016 2017
Priority Sector Percent Share 67.21% 60.10% 56.13% 59.90% 48.34% 42.21%
Non-priority Sector Percent Share 31.96% 38.76% 43.08% 39.47% 51.37% 57.71%
Public Sector Percent Share 0.83% 1.13% 0.79% 0.64% 0.29% 0.08%

Priority Sector Percent Share Non-priority Sector Percent Share Public Sector Percent Share

Bank group/Year Priority Sector Non-priority Sector Public Sector

Nationalized Banks Percent Percent Percent
2012 67.21% 31.96% 0.83%
2013 60.10% 38.76% 1.13%
2014 56.13% 43.08% 0.79%
2015 59.90% 39.47% 0.64%
2016 48.34% 51.37% 0.29%
2017 42.21% 57.71% 0.08%

[27]
The above table depicts the total amount of NPAs at Nationalized banks in India as on 31st
march from 2012 to 2017. And also the above table depicts the composition of NPAs of
different sector at nationalized banks. During 2011, priority sector share was 67.21%, Non-
priority sector 31.96% and public sector share was 0.83%. In the year 2013 priority sector,
Non-priority sector and public sector share was 60.10%, 38.76% and 1.13% respectively in
the NPAs. In the year 2014 priority sector share was 56.13%, Non-priority sector share was
43.08 and public sector share was 0.97% in NPAs, during year 2014 priority sector, Non-
priority sector and public sector share was 59.90%, 39.47% and 0.64% respectively. In the
year 2016 priority sector share was 48.34%, Non-priority sector share was 51.37% and public
sector share was 0.29% and in the year 2016 priority sector was 42.21%, Non-priority sector
share was 57.71% and public sector share was 0.08% in the amount of NPAs of Nationalized
banks in India.
It can be inferred that during 2015 and 2016 Non-priority sector share in the amount of NPAs
of Nationalized banks is more as compared to priority and public sector and during 2011,
2012, and 2013 .Priority sector share in the amount of NPAs of Nationalized banks is more as
compared to public sector share and non-priority sector.

COMPOSITION OF NPAs OF SBI GROUP- 2012 TO 2017

SBI Group
100.00%

80.00%

60.00%

40.00%

20.00%

0.00%
2012 2013 2014 2015 2016 2017
Priority Sector Percent 58.49% 47.26% 50.11% 55.32% 52.33% 44.09%
Non-priority Sector Percent 40.88% 51.75% 48.77% 44.66% 47.62% 55.85%
Public Sector Percent 0.63% 0.99% 1.12% 0.02% 0.05% 0.05%

Priority Sector Percent Non-priority Sector Percent Public Sector Percent

[28]
 Bank group/Year Priority Sector Non-priority Sector Public Sector
SBI Group Percent Percent Percent
2012 58.49% 40.88% 0.63%
2013 47.26% 51.75% 0.99%
2014 50.11% 48.77% 1.12%
2015 55.32% 44.66% 0.02%
2016 52.33% 47.62% 0.05%
2017 44.09% 55.85% 0.05%

The above table depicts total amount of NPAs at SBI Group banks in India as on 31st March
from 2012 to 2017. The above table also depicts the sector wise share in the amount of NPAs
of SBI Group in India. From the above table it is observed that, In the year 2012 priority
sector, Non-priority sector and public sector share was 58.49%, 40.88% and 0.63%
respectively. In the year 2013 priority sector, Non-priority sector and public sector share was
47.26%, 51.75% and 0.99% respectively. During 2014 priority sector share was 50.11%,
Non-priority sector share was 48.77% and public sector share was 1.12% in the amount of
NPAs of SBI Group banks. In the year 2015 priority sector, Non-priority sector and public
sector share was 55.32%, 44.66% and 0.02% respectively. During the year 2016 priority
sector, Non-priority sector and public sector share was 52.33%, 47.62% and 0.05%
respectively. During 2017 priority sector share in the amount of NPAs of SBI Group banks
was 44.09%, Non-prioritysector share was 55.85% and Public sector share was 0.05% only.

[29]
COMPOSITION OF NPAs OF PUBLIC SECTOR BANKS - 2012 TO 2017

Public Sector Banks

100.00%

80.00%

60.00%

40.00%

20.00%

0.00%
2012 2013 2014 2015 2016 2017
Priority Sector Percent 63.85% 54.89% 53.84% 58.09% 49.96% 42.93%
Non-priority Sector Percent 35.39% 44.04% 45.25% 41.52% 49.85% 57.00%
Public Sector Percent 0.75% 1.08% 0.91% 0.39% 0.19% 0.07%

Priority Sector Percent Non-priority Sector Percent Public Sector Percent

Bank group/Year Priority Sector Non-priority Sector Public Sector

Public Sector Banks Percent Percent Percent
2012 63.85% 35.39% 0.75%
2013 54.89% 44.04% 1.08%
2014 53.84% 45.25% 0.91%
2015 58.09% 41.52% 0.39%
2016 49.96% 49.85% 0.19%
2017 42.93% 57.00% 0.07%

The above table depicts the total amount of NPAs at Public sector banks in India. And
different sectors contribution to the total NPAs. During the year 2011 priority sector share
was 63.85%, Non-priority sector share was 35.39% and Public sector share 0.75 for the total
NPAs of 396.05 billion. In the year 2010 priority sector, Non-priority sector and public sector
share was 54.89%, 44.04% and 1.08% respectively. During the year 2013 priority sector,
Non-priority sector and public sector share was 53.84%, 45.25% and 0.91% respectively. In
the year 2014 priority sector, Non-priority sector and public sector share was 58.09%,
41.52% and 0.39% for the total amount of NPAs of 710.80 billion.

[30]
During the year 2015 priority sector, Non-priority sector and public sector share was 49.96%,
49.85% and 0.19% for the total amount of NPAs of 1124.89 billion. In the year 2017 priority
sector, Non-priority sector and public sector share was 42.93%, 57.00% and 0.07% for the
total amount of NPAs of 1558.90 billion.

BANKS GROUP-WISE GROSS NON-PERFORMING ASSETS, GROSS

ADVANCES AND GROSS NPA RATIO OF PUBLIC SECTOR BANKS-
2017

Public Sector Banks

50000000
45000000
40000000
35000000
30000000
25000000
20000000
15000000
10000000
5000000
0
SBI and its Associates Nationalized Banks $ Public Sector Banks
Gross NPAs 627784 1016834 1644618
Gross Advances 14188827 31412861 45601688

Gross NPAs Gross Advances

Banks (Public Sector Banks ) Gross NPAs Gross Advances

SBI and its Associates 627784 14188827
Nationalized Banks $ 1016834 31412861
Public Sector Banks 1644618 45601688

[31]
BANKS GROUP-WISE GROSS NON-PERFORMING ASSETS, GROSS
ADVANCES AND GROSS NPA RATIO OF PRIVATE SECTOR BANKS-
2017

Private Sector Banks

14000000
12000000
10000000
8000000
6000000
4000000
2000000
0
Old Private Sector New Private Sector
Private Sector Banks
Banks Banks
Gross NPAs 52098 155525 207623
Gross Advances 2731197 8860233 11591430

Gross NPAs Gross Advances

Banks (Private Sector Banks) Gross NPAs Gross Advances

Old Private Sector Banks 52098 2731197
New Private Sector Banks 155525 8860233
Private Sector Banks 207623 11591430

Gross NPA is an advance which is considered irrecoverable, for bank has made provisions,
and which is still held in banks' books of account. Compared to private sector banks
(207623), Public sector banks have more gross NPA (1644618).Gross advances Compared to
private sector banks (45601688), Public sector banks have more gross advances
(11591430).The ratio of Gross NPA to gross advances in case of public sector is more
compared to private sector (3.6 public sector to 1.79 private sector), which need to be reduced
by adopting the necessary measures.

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In absolute terms, State Bank of India has the highest value of Gross NPA around Rs. 93,000 crores.
Punjab National Bank (Rs. 55,000 crores) and Bank of India (Rs. 44,000 crores) come next.

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Basic Metal and Metal Products sector is the worst performing in terms of NPA ratio. As of June
2016, govt data show that a third of all outstanding advances (Rs. 4.33 lakh crore) given to the sector
turned to NPA (Rs. 1.49 lakh crore).

[34]
As per the reports of PWC a closer analysis reveals that the majority of stressed assets are in

the infrastructure segment, including power and telecom, as well as textile, iron and steel for

the Year 2016-17.

A review of Reserve Bank of India (RBI) data obtained through right-to-information requests
shows banks’ total stressed loans - including non-performing and restructured or rolled over
loans - rose 4.5 percent in the six months to end-June. In the previous six months they had
risen 5.8 percent.

While banks remain the main source of funding for India’s companies, the stubborn bad debt
problem has eaten into bank profits and choked off new lending, especially to smaller firms,
at a time when an economy that depends on them is stalling.

[35]
India grew at its slowest pace in three years in April-June - a concern for the government of
Prime Minister Narendra Modi, who faces elections in 2019 and has pledged to create
millions of new jobs before then.

Banks are having to take higher provisions to account for more defaulters being pushed into
bankruptcy. And margins are likely to be squeezed further by proposed new rules to
encourage commercial banks to pass on central bank interest rate cuts.

To be sure, the bulk of India’s sour loans are in the state banks and stem from lending to large
conglomerates, especially in steel and infrastructure. But analysts say the rise in bad loans
among small firms, and even retail borrowing, is worrying and will do little to encourage new
loans to help fuel growth.

“On the corporate side, we think it’s a recognition cycle which is nearing an end,” said Alka
Anbarasu, senior analyst at Moody’s Investor Service, referring to more bad loans being
recognised as such, as banks come under pressure from the RBI and other regulators. “But
it’s really those data points beyond corporate that are causing some worry.”

Anbarasu forecast weak quarters ahead for banks before profitability picks up, and several
senior bankers from public sector lenders - which account for more than two-thirds of Indian
banking assets - agreed the months ahead would be strained.

Stressed loans as a percentage of total loans reached 12.6 percent at end-June, according to
the RBI data, the highest level in at least 15 years.

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SUGGESTIONS

[37]
These are some of the legal measures in order to recover NPAs.

1. Debt Recovery Tribunals (DRTs): Narasimham Committee Report I (1991) recommended

the setting up of Special Tribunals to reduce the time required for settling cases. There are 22
DRTs and 5 Debt Recovery Appellate Tribunals. This is insufficient to solve the problem all
over the country (India).

2. Securitisation Act 2002: Securitisation and Reconstruction of Financial Assets and

Enforcement of Security Interest Act 2002 is popularly known as Securitisation Act. This act
enables the banks to issue notices to defaulters who have to pay the debts within 60 days.
Once the notice is issued the borrower cannot sell or dispose the assets without the consent of
the lender. The Securitisation Act further empowers the banks to take over the possession of
the assets and management of the company. The lenders can recover the dues by selling the
assets or changing the management of the firm. The Act also enables the establishment of
Asset Reconstruction Companies for acquiring NPA. According to the provisions of the Act,
Asset Reconstruction Company of India Ltd. with eight shareholders and an initial capital of
Rs. 10 crores has been set up. The eight shareholders are HDFC, HDFC Bank, IDBI, IDBI
Bank, SBI, ICICI, Federal Bank and South Indian Bank.

3. Lok Adalats: Lok Adalats have been found suitable for the recovery of small loans.
According to RBI guidelines issued in 2001. They cover NPA up to Rs. 5 lakhs, both suit
filed and nonsuit filed are covered. Lok Adalats avoid the legal process. The Public Sector
Banks had recovered Rs. 40 Crores by September 2001.

4. Compromise Settlement: Compromise Settlement Scheme provides a simple mechanism

for recovery of NPA. Compromise Settlement Scheme is applied to advances below Rs. 10
Crores. It covers suit filed cases and cases pending with courts and DRTs (Debt Recovery
Tribunals). Cases of Willful default and fraud were excluded.

5. Credit Information Bureau: A good information system is required to prevent loans from
turning into a NPA. If a borrower is a defaulter to one bank, this information should be
available to all banks so that they may avoid lending to him. A Credit Information Bureau
can help by maintaining a data bank which can be assessed by all lending institutions.

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6.Corporate Governance: A Consultative Group under the chairmanship of Dr. A.S. Ganguly
was set up by the Reserve Bank to review the supervisory role of Boards of banks and
financial institutions and to obtain feedback on the functioning of the Boards vis-à-vis
compliance, transparency, disclosures, audit committees etc. and make recommendations for
making the role of Board of Directors more effective with a view to minimizing risks and
over-exposure. The Group is finalizing its recommendations shortly and may come out with
guidelines for effective control and supervision by bank board’s over credit management and
NPA prevention measures.

7. RBI should revise existing credit appraisals and monitoring systems.

8. Banks should improved upon and strengthen the loan recovery methods

9. Credit appraisal and post –loan monitoring are crucial steps which need to concentrate by

all the public sector banks.

10. Managers under credit monitoring and recovery department should have dynamism in

their work. Many managers say that “we do not fear to negotiate but we do not negotiate

out of fear. Such fear leads to arbitrary negotiation, which fails.

11. If the delinquencies are due to reasons beyond the control of borrower which are namely

draughts, floods, or other natural calamities, the banker should suitably restructure the

loans taking into account the genuine difficulty of the borrowers.

[39]
CONCLUSION

[40]
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 but still a lot needs to be done to curb this problem. The NPAs level of our banks is
still

high as compared to the foreign banks. 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.

[41]
REFERENCES & BIBLIOGRAPHY

[42]
 Karunakar, M., “Are non - Performing Assets Gloomy or Greedy from Indian
Perspective,
 Research Journal of Social Sciences, 3: 4-12, 2016

 Bardia S.C., “Credit Efficiency in Banks: A Comparative Study”, The ICFAI

University Press,
 August 2004, p.no – 60-67, 2016

 Bhatia, “Non-Performing Assets of Indian Public, Private and Foreign Sector Banks:
An
 Empirical Assessment”, ICFAI Journal of Bank Management, Vol. 6, No. 3, pp. 7-28,
2017.
 Vallabh, G., Mishra, S. and Bhatia, A., “Non-Performing Assets of Indian Public,
Private and
 Foreign Sector Banks:

 www.rbi.org.in


 http://www.iosrjournals.org

[43]