Comparative study of nonperforming assets of public

sector and private sector banks

A. Nagabhushan, Assistant Professor, Department of Management
studies, VFSTR (Deemed to be University)
Y. Madhu Venkata Sainath, Student, Department of Management Studies,
VFSTR (Deemed to be University)

ABSTRACT

THE BANKING SECTOR IS A BASE OF THE INDIAN ECONOMY. IN THIS

PAPER WE TOLD ABOUT THE COMPARATIVE ANALYSIS OF Non-
PERFORMING ASSETS OF PUBLIC AND PRIVATE SECTOR BANKS OVER A
Twelve-year PERIOD, I.e.,2005-2017. it has noticed that NPA to net
advances is 1.3 and 0.7. in case of private sector banks, it varied between
1.0 and 0.6. in this paper, we have given some information about the
Sector wise NPA in bank

Key words
Non-performing assets, public sector banks, private sector banks,
recovery channels of NPA, sector wise NPA.

Introduction
Banking sector has an important role in the rapid growth of Indian
economy through outlined efforts. In fact, banking system of any
country is the activity of the economy. A banking institution is crucial in
a modern society.
The first stage of economic liberalization in 1991 and hence credit
management. Asset quality was not base concern in Indian banking
sector till 1991, but was essentially attract on performance objective
such as opening wide branches, development of rural areas, priority
sector lending, high employment generation, etc. while the dominant
function of banks is to lend funds as loans to various sector such as
agricultural industry, personal loans, housing loan etc. but in recent
times the banks have become very alert in extending loans, the reason
being rise up nonperforming assets (NPAs) and nowadays these are one
of the major interest for banks in India.

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 What is nonperforming asset
NPA (non – performing assets) is related to finance and banking term.
When finance or bank company is not able to recover its lent money from
the borrower in 90 days than that amount which have not been get back
will be treated as nonperforming asset. It serves as bad loans, the
borrowers of which
Decline to satisfy their repayment obligations.

Types of NPA
Non-performing assets are classified into
 Gross NPA
 Net NPA

Gross NPA

It is an advance which is considered impossible, for which bank has made

provisions and which is still held in banks books of account

Gross NPAs Ratio: Gross NPAs Gross

Advances
Net NPA
It is obtained by subtract items like interest due but not recovered, part
payment received and kept in suspense account from Gross NPA

NET NPAs: Gross NPAs – Provisions

Gross Advances – Provisions

Objectives of the study:

Objectives of the present study are:
 To find the comparison between the net advances and nonperforming
assets of public sector and private sector bank
 To compare the relation of nonperforming assets of public and private
sector banks
 To compare the sector wise nonperforming assets of public and
private sector banks

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 Impact of nonperforming Asset
 Decrease the earning capacity of assets and poorly affect the
return on interest
 The cost of capital will rise up
 The assets and liability will be extended
 Higher provisions requirement on mounting nonperforming
assets adversely affect capital adequacy ratio and profits of
banks
 Economic value additions (EVA) by banks if it rises up is
equal to Net operating profit minus cost of capital
 Nonperforming assets causes to decline the value of share
sometimes even below their book value in the capital market
 Nonperforming asset will affect the risk facing ability of
banks

Asset classification categories of NPAS

1. Standard Asset:
Standard assets are the ones in which the bank is accepting 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 deficit 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 division 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 divide non-performing assets further into the following
three categories based on the course for which the asset has remained non-
performing and the accuracy of the dues:

2. Sub-standard Assets:
With the effect from 31 march 2005, a substandard asset would be
one, which has continued NPA for a period less than or equal to 12
months

3. Doubtful Assets:
A loan classified as doubtful if it continued in the sub-standard
division for 12 months
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4. Loss assets
A loss asset is one which treated write off and 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 of assets by the bank or internal or external auditors or the
RBI inspection but the amount would not have been uncollectable wholly.

Factors to rise nonperforming assets

The banking sector has been facing the serious problems of rising up NPAs.
When compared to public banks NPAs are more than private sector banks.
Causes of rising NPAs are the internal factor and external factor

External factors
 Inefficient return of loans
 Willful borrower
 Natural calamities
 No growth in industries
 Absence of demand
 Change on government policies
 Directed loans system

Internal factor
 Defective lending process
 Inappropriate technology
 Improper SWOT (Strength weakness opportunities threats)
 Wrong managerial decisions
 Absence of regular visit
 Faulty credit management

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 ANALYSIS
In this table shows that public and private sector banks of gross and net
NPAs over the period of twelve years period. In this period of gross and net
Nonperforming trends. Many years are the nonperforming assets are decline
trend only. Almost 80% of NPA years are decline. In the year of 2015-16
Nonperforming assets was doubled over the period of 2014-15. In the year of
2005-06 Gross NPAs was Rs.421 crores. In the year of 2016-17 Gross NPAs
was Rs.6,847 crores. In this twelve-year period the NPAs was increased by
1500%. In the year of 2005-06 Net NPAs was Rs.145 crores. In this year of
2016-17 Net NPA was Rs.3,830 crores. In this twelve-year period the Net
NPAs was increased by 2000%

Private Sector
Public Sector Banks Private Sector Banks Public Sector Banks
Banks
%Net
Gross % of Gross Gross % of Gross Net % of Net Net NPAs to
Years
NPAs ( NPAs NPAs ( NPAs NPAs ( NPAs to NPAs ( net
advances
Rs. in to Gross Rs. in to Gross Rs. in Net Rs. in
Rs, in
crore) Advances crore) Advances crore) Advances crore)
2005- 3.3 2.4
421.17 75.99 145.66 1.3 31.70 1.0
06
2006- 2.5 2.2 153.25 1.1 40.28 1.0
389.68 91.45
07
2007- 2.3 2.5 178.36 1.0 56.47 1.1
406 129.22
08
2008- 2.3 2.9 211.55 0.9 74.12 1.3
459.18 167.87
09
2009- 2.5 3.0 296.43 1.1 65.06 1.0
573.01 173.07
10
2010- 2.4 2.5 360.55 1.1 44.32 0.6
710.42 179.05
11
2011- 2.9 2.1 593.91 1.5 44.01 0.5
1124.88 182.1
12
2012- 3.2 1.8 900.37 2.0 59.94 0.5
1644.61 203.82
13
2013- 3.8 1.8 1306.35 2.6 88.62 0.7
2272.64 241.84
14
2014- 4.3 2.1 1599.51 2.9 141.28 0.9
2784.68 336.9
15
2015- 7.5 2.8 3203.76 5.7 266.77 1.4
5399.56 558.53
16
2016- 6847.33 9.3 4.1 3830.89 6.9 477.80 2.2
919.15
17

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 GROSS NONPERFORMING ASSETS OF PUBLIC SECTOR AND
PRIVATE SECTOR BANK
8000

7000

6000

5000

4000

3000

2000

1000

0
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17

public sector banks private sector banks

In the year of 2005-06 the Gross NPAs was Rs.421 crores. In the year of 2016-17 the
Gross NPAs was Rs.6847 crores. In this twelve-year period Gross NPAs was
increased by 15times. In this twelve-year period Gross NPAs was increasing trend.

NET NONPERFORMING ASSETS OF PUBLIC SECTOR AND

PRIVATE SECTOR BANKS
4500.00
4000.00
3500.00
3000.00
2500.00
2000.00
1500.00
1000.00
500.00
0.00
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17

Public sector banks Private sector banks

In the year of 2005-06 the Net NPAs was Rs.145 crores. In the year of 2016-17 the
Net NPAs was Rs.3830 crores. In this twelve-year period Net NPAs was increased by
20times. In this twelve-year period Net NPAs was increasing trend.

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 Sector wise Nonperforming assets in public sector
banks for the period of 1995-2009
Priority Sector Public Sector Non-Priority Sector Total
Year Amount Per cent Amount Per cent Amount Per cent Amount Per cent
1995 19209 50.0 1316 3.4 17861 46.5 38385 100
1996 19106 48.3 1411 3.6 19067 48.2 39584 100
1997 20774 47.7 1461 3.4 21341 49.0 43576 100
1998 21184 46.4 1362 3.0 23107 50.6 45653 100
1999 22606 43.7 1496 2.9 27608 53.4 51710 100
2000 23715 44.5 1055 2.0 28524 53.5 53294 100
2001 24156 45.4 1711 3.2 27307 51.4 53174 100
2002 25139 44.5 1116 2.0 30251 53.5 56506 100
2003 24938 47.2 1087 2.1 26781 50.7 52807 100
2004 23840 47.5 610 1.2 25698 51.2 50148 100
2005 23397 49.1 450 0.9 23849 50.0 47696 100
2006 22374 54.1 341 0.8 18664 45.1 41378 100
2007 22954 59.5 490 1.3 15158 39.3 38602 100
2008 25287 63.6 299 0.7 14163 35.6 39749 100
2009 24318 55.2 474 1.1 19251 43.7 44042 100

In the above table nonperforming assets have the priority sector, public sector and
non-priority sector. In the year of 2002 the highest amount of nonperforming asset
Amount was Rs.56,506 crores. First eight years the sector wise Nonperforming assets
was increasing trend. After reached the highest number of sectors was decline trend.

sector wise nonperforming assets in public sector bank

35000

30000

25000

20000

15000

10000

5000

0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

priority sector public sector non-priority sector

In the above graph tells about in the year of 2002 sector wise nonperforming assets
was very high. In this graph was tell about the increasing trend after reaching highest
point declining trend. In the public sector every year was declining trend.
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 Sector wise nonperforming assets of private sector
banks from the period of 2001-2009

Priority Sector Public Sector Non-Priority Sector Total

Year Amount Per cent Amount Per cent Amount Per cent Amount Per cent
2001 1835 28.6 123 1.9 4452 69.5 6410 100
2002 2546 21.8 31 0.3 9090 77.9 11667 100
2003 2445 20.6 95 0.8 9327 78.6 11866 100
2004 2482 24.0 75 0.7 7796 75.3 10352 100
2005 2188 24.9 42 0.5 6569 74.7 8799 100
2006 2284 29.2 4 0.1 5541 70.8 7829 100
2007 2884 31.2 2.79 0.03 6352.51 68.75 9239.48 100
2008 3419 26.3 .01 - 9557 73.6 12976 100
2009 3640 21.6 75 .4 13172 78.0 16887 100

In this nine-year period the sector wise nonperforming assets. In the priority sector every year
was increasing trend only. In this nine-year period 2time the priority sector. In public sector
wise nonperforming sector one year was increased and another year was decreased. In the
non-priority sector nonperforming assets was the 3times was in this over the period

sector wise nonperforming assets in private

sector banks in india
14000
12000
10000
8000
6000
4000
2000
0
2001 2002 2003 2004 2005 2006 2007 2008 2009

priority seacot public sector non-priority sector

In this nine-year period the sector wise nonperforming assets. In the priority sector every year
was increasing trend only. In this nine-year period 2time the priority sector. In public sector
wise nonperforming sector one year was increased and another year was decreased. In the
non-priority sector nonperforming assets was the 3times was in this over the peri

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SUGGESTIONS:
 Established a tribunal for the recover the nonperforming assets
 At the time of giving loans should process a strict rule on giving
advances to different sector
 Public sector banks should process a strict rule because of high
amount of nonperforming assets was given by the public sector
banks
 Banks should improve the loan recovery methods
 Proper selection of borrowers and follow-up them

CONCLUSION:
Nonperforming asset is one of the biggest problems that are faced by
the Indian banks. If the proper management of the nonperforming
asset is not undertaken it would frustrate the business of the banks. If
the concept of nonperforming assets is taken very lightly it would be
dangerous for the banking sector in India. The nonperforming assets
would collapse the current profit, interest income due to large
provisions of the nonperforming assets, and would affect functioning of
the banking sector in India.

Although public sector banks in India have a good substandard asset

when compared with private sector banks but private sector banks are
more active than public sector banks with view to all the other factors
which give them a good upper hand

The nonperforming assets have always created a big problem for the
banks in India. It is not just a problem for the bank but also to Indian
economy. The money locked up in nonperforming assets as a direct
Impact on profitability of banks in India. Indian banks are more
depended on the income of the interest on funds borrowed. This study
had showed that extent of nonperforming assets is comparatively very
high in public sector banks in India. Although various steps have been
taken by government to decrease the nonperforming assets. The bank
management of public or private would speed up the recovery process.
The government should also make more provisions for faster
settlement of pending cases and also should decrease the mandatory
lending to priority sector as this is the problem creating are.

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Reference to this paper should be made as follows:
Bhaskaran, R., Bhalla, L., Sarin, V., Kaur, S., Rahman, A.,
Singh, G., Bhattacharya, A.M., Jha, A.K. and Verma, P.
(2016) ‘Non-performing assets of public and private
sector banks in India – a comparative study’, Int. J.
Services and Operations Management, Vol. 25, No. 2,
pp.155–172.
Biographical notes: R. Bhaskaran is working as an
Associate Professor, School of Business, Lovely
Professional University, Phagwara, Punjab. He received
his doctorate from Bharathidasan University,
Tiruchirappalli in 2005. His area of specialization is
‘corrosion auditing’. He has published 12 research papers
in international journals. He has filed an Indian patent on
‘Anode backfill’ in 2009.

Lalit Bhalla is presently working as an Assistant Professor

in Lovely Professional University. He is pursing his PhD
from Himachal University. His area of specialization is
accounting and finance.

Vishal Sarin is presently working as an Assistant Professor

in Lovely Professional University. He received his PhD
degree during 2013. His area of specialization is
economics and quantitative techniques.

Sukhpreet Kaur is presently working as an Assistant

Professor in Lovely Professional University. Her area of
specialization is finance and business law. She has
teaching experience of more than ten years. She is
pursuing her PhD degree from Punjab Technical
University, Punjab.

Afzalur Rahman is working as an Assistant Professor in

Lovely Professional University. He received his doctorate
from Patna University, Patna in 2011. His area of
specialization is accounting and finance.

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