A

SYNOPSIS ON

“A STUDY OF NON PERFORMING ASSETS IN INDIAN PRIVATE

BANKING SECTOR”
(TWO DECADES OF CREDIT MANAGEMENT – LOOKING BACK AND MOVING
AHEAD)

MASTER OF BUSINESS ADMINISTRATION

IN
FINANCIAL MANAGEMENT

UNDER SUPERVISION OF: SUBMITTED BY: MANI JINDAL

NAME : NEERAJ GUPTA ENROLLMENT NO : 130413457
 A STUDY OF NON PERFORMING ASSETS IN INDIAN PRIVATE
BANKING SECTOR

INTRODUCTION
The accumulation of huge non-performing assets in banks has assumed great importance.
The depth of the problem of bad debts was first realized only in early 1990s. The
magnitude of NPAs in banks and financial institutions is over Rs.1,50,000 crores.
While gross NPA reflects the quality of the loans made by banks, net NPA
shows the actual burden of banks. Now it is increasingly evident that the major defaulters
are the big borrowers coming from the non-priority sector. The banks and financial
institutions have to take the initiative to reduce NPAs in a time bound strategic approach.
Public sector banks figure prominently in the debate not only because they
dominate the banking industries, but also since they have much larger NPAs compared
with the private sector banks. This raises a concern in the industry and academia because
it is generally felt that NPAs reduce the profitability of a banks, weaken its financial health
and erode its solvency.
For the recovery of NPAs a broad framework has evolved for the
management of NPAs under which several options are provided for debt recovery and
restructuring. Banks and FIs have the freedom to design and implement their own policies
for recovery and write-off incorporating compromise and negotiated settlements.
The accumulation of huge non-performing assets in banks has assumed great importance.
The depth of the problem of bad debts was first realized only in
early 1990s. The magnitude of NPAs in banks and financial institutions is over Rs.1,
50,000 crores. While gross NPA reflects the quality of the loans made by banks, net NPA
shows the actual burden of banks. Now it is increasingly evident that the major defaulters
are the big borrowers coming from the non-priority sector. The banks and financial
institutions have to take the initiative to reduce NPAs in a time bound strategic approach.
Public sector banks figure prominently in the debate not only because they dominate the
banking industries, but also since they have much larger NPAs compared with the private
sector banks. This raises a concern in the industry and academia because it is generally
felt that NPAs reduce the profitability of banks, weaken its financial health and erode its
solvency. For the recovery of NPAs a broad framework has evolved for the management of
NPAs under which several options are provided for debt recovery and restructuring. Banks
and FIs have the freedom to design and implement their own policies for recovery and
write-off incorporating compromise and negotiated settlements.
 TYPES OF BANKS:
PUBLIC SECTOR BANKS:
Public sector banks are the ones in which the government has a major holding. Public
Sector Banks dominate 75% of deposits and 71% of advances in the banking industry.
Public Sector Banks control commercial banking India, these can be further classified into:
1) Nationalized banks
2) State Bank of India and its associates
3) Regional Rural Banks
PRIVATE SECTOR BANKS:
Private sector banks came into existence to supplement the performance of public sector
banks and serve the needs of the economy better. As the public sector banks were merely
in the hands of the government, banks had no incentive to make profits and improve their
financial capability.
The main difference between public and private sector banks is only that public sector
banks follow the RBI interest rules strictly but private banks can make some changes in
them but only after the approval from the RBI. Private sector banks are the banks which
are controlled by the private lenders with the approval from the RBI. Their interest rates
are slightly costly as compared to public sector banks.

THE NPA CONCEPT

WHAT IS A NPA (NON PERFORMING ASSETS) ?

Action for enforcement of security interest can be initiated only if the secured asset is
classified as Nonperforming asset.

Non performing asset means an asset or account of borrower ,which has been classified
by bank or financial institution as sub –standard , doubtful or loss asset, in accordance
with the direction or guidelines relating to assets classification issued by RBI .

An amount due under any credit facility is treated as “past due” when it is not been
paid within 30 days from the due date. Due to the improvement in the payment and
settlement system, recovery climate, up gradation of technology in the banking system
etc, it was decided to dispense with “past due “concept, with effect from March 31, 2001.
Accordingly as from that date, a Non performing asset shell be an advance where

i. Interest and/or installment of principal remain overdue for a period of more than
180 days in respect of a term loan,
 ii. The account remains ‘out of order ‘ for a period of more than 180 days ,in respect
of an overdraft/cash credit (OD/CC)

iii. The bill remains overdue for a period of more than 180 days in case of bill
purchased or discounted.

iv. Interest and/or principal remains overdue for two harvest season but for a period
not exceeding two half years in case of an advance granted for agricultural purpose ,and

v. Any amount to be received remains overdue for a period of more than 180 days in
respect of other accounts..

RESEARCH PROBLEM:

Indian banking industry, which was in glory phase once upon a time, has been facing a
lots of challenges on non performing assets at present scenario. Many banks have kept
their NPAs under the control but some banks are not able to control their NPA levels.
They are facing lots of problems. There can be various reasons behind this NPA. Non-
performing assets has been hitting the profitability of the banks or it can be said that due
to NPA, the profitability of the banks are going down day by day. The subsidiary for this is
the functioning of Debt Recovery Tribunal (DRT) which is a judiciary for the bank for
recovery amount from the default customers. These can be considered as a research
problem based on which the information is collected, the object is measured and the data
is analyzed and interpreted.

OBJECTIVES OF THE STUDY

The basic idea behind undertaking the Grand Project on NPA was to:

 To Know the Concept of Non Performing Asset

 To know Preventive Measures

 To evaluate NPAs (Gross and Net) in different banks.

 To analyze financial performance of banks at different level of NPA

 To Know the Impact of NPAs

 To Know the Reasons for NPAs

 To study the trend of NPAs during last nine years.

 To find out the effectiveness of recovery mechanism adopted by banks for NPA.

 To establish relationship between NPAs and profitability of private banks.

  To suggest measures to reduce NPAs in private sector.

RESEARCH METHODOLOGY

Research methodology is a way to systematically solve the research problem. Research

methodology constitutes of research methods, selection criterion of research methods,
used in context of research study and explanation of using of a particular method or
technique so that research results are capable of being evaluated either by researcher
himself or by others.

TITLE:

“PROCEDURE TO REDUCE NON-PERFORMING ASSETS IN BANKS ”.

RESEARCH DESIGN

 NON-PROBABILITY

 EXPLORATORY &DISCRIPTIVE EXPERIMENTAL RESEARCH

STATISTICAL TOOLS:

The analyses of primary data were conducted through descriptive statistics, factor
analysis, Pearson correlation and one-sample t-test. The secondary data was analyzed
through column charts, line charts, bar charts and percentages.
As no study could be successfully completed without proper tools and techniques, same
with my project. For the better presentation and right explanation I used tools of statistics
and computer very frequently. And I am very thankful to all those tools for helping me a lot.
Basic tools which I used for project from statistics are-
- Bar Charts
- Pie charts
- Tables
bar charts and pie charts are really useful tools for every research to show the result in a
well clear, ease and simple way. Because I used bar charts and pie charts in project for
showing data in a systematic way, so it need not necessary for any observer to read all the
theoretical detail, simple on seeing the charts any body could know that what is being said.
Technological Tools
Ms-Access
Ms-Word
Above application software of Microsoft helped me a lot in making project more interactive
and productive.
Microsoft-Excel had a great role in my project, it created for me a situation of
“you sit and get”. I provided it simply all the detail of data and in return it given
me all the relevant information.
COLLECTION OF DATA:
The relevant data was collected from both primary and secondary sources. Census
method of data collection was applied to collect primary information. Research population
for the study comprised of private banks operating in Jalandhar and Phagwara (Punjab).
The response rate for the present study came to be 86.66 % since 13 banks responded
out of 15 private banks in the concerned area. The 13 banks surveyed are 1) Axis Bank, 2)
Citi Bank, 3) Federal Bank; 4) HDFC Bank, 5) ICICI Bank, 6) IndusInd Bank, 7) ING Vysya
Bank, 8) Karnataka Bank, 9) Karur Vysya Bank, 10) Kotak Mahindra Bank, 11) South
Indian Bank, 12) Jammu and Kashmir Bank, 13) IDBI Bank.
The secondary sources comprised of various audited reports and publications of the
Reserve Bank of India. Detailed information were collected mainly from the various
volumes of the “Statistical Tables Relating to Banks in India” which were published by the
Statistical Department of Reserve Bank of India, Mumbai from the website www.rbi.org.in.

The research is primarily both exploratory as well as descriptive in nature. The sources of
information are both primary & secondary.

Primary Data:
Primary data is basically the live data which I collected on field while doing cold calls with
the Distributor and shopkeeper, customers, I shown them list of question for which I had
required their responses. In some cases I got no response form their side and than on the
basis of my previous experiences I filled those fields.
Source: Main source for the primary data for the project was questionnaires which I got
filled by the customers or some times filled myself on the basis of discussion with the
customers.
Secondary Data:
1 Internet ,
2 Books
3 Journals ,
4 Newspaper,
 5 Annual report,
6 Database available in the library,
7 Catalogues and presentations.

SAMPLING METHODOLOGY

A structured questionnaire assessing work system, recovery system, processing loan

applications and other impeding factors associated with loan portfolio was used to collect
primary information from the private banks. Items based on 5-point Likert scale and
multiple chioce questions were included in the questionnaire.

Sample size:

The sample size was restricted to only 100, which comprised of mainly peoples from
different regions of LUDHIANA due to time constraints.

Sampling Area :

The area of the research was LUDHIANA.

BENEFICIARIES OF THE STUDY:

The outcomes analyzed from this study would be beneficial to various sections such as:
Banks: This study would primarily benefit the banks in identifying the sectors to be given
priority for lending money.
Future Researchers: The results of the study would also benefit the future researchers as
this study would enhance their knowledge about the topic. They would get an insight of the
present scenario of this industry as this is the emerging industry in the financial sector of
the economy.
Students: This research would help students in understanding of NPA concept as a whole.

NEED OF THE STUDY:

The non-performing assets that are not able to generate income for the bank are the great
threat for the banking institution. Rather than generating profit for the bank, NPA drains off
the income earned by the other performing asset by the way of paying interest to the real
owner of the resources. It affects the overall profitability of the bank adversely by affecting
the return on equity and return on asset. There are certain ways through which it affects
the financial institutions are as follows:
Thus, the need of the study of the NPA is must necessary due to these reasons. These
reasons are the crucial for any bank at present. One has to realize these matters and has
to take corrective action against NPA reasons, as for as possible one has to convert all the
NPA accounts into PA accounts. As far as the importance of the study is concern, without
the study, one can’t identify the whole gamut of the NPA. To know, how the account is
becoming NPA is must necessary.
After identifying the reason behind the particular NPA account, one can go for a step
ahead. That means for the step of how to convert into PA and how to prevent other
account from becoming NPA. As for as possible, one has to eradicate the reasons of
NPAs. Thus, it is highly importance to study NPA in detail.
SCOPE OF THE STUDY
Being a project scope will be based on the day-to-day teamwork operations. The data will
becollected
be from various aspects of loans and advances in various private banks of
Ludhiana (Punjab).
 Concept of Non Performing Asset
 Guidelines
 Impact of NPAs
 Reasons for NPAs
 Preventive Measures
 Tools to manage NPAs
 To understand the concept of NPA in Indian Private Banking industry.
 To analyze the past trends of NPA of Private banks.
LIMITATIONS:
1. The present study is confined to Ludhiana area only.
2. The conclusions of the study are based on the responses of the banks and secondary
information. Thus, some amount of subjectivity might remain.
CONCLUSION:
Growing NPAs is one of the biggest problems that the private Indian banks are facing
today. If proper management of the NPAs is not undertaken it would hamper the efficiency
of the banks. If the concept of NPAs is taken very lightly it would be dangerous for the
banking sector. The NPAs destroy the current profit and interest income and affect the
smooth functioning of the recycling of the funds. Banks also redistribute losses to other
borrowers by charging higher interest rates. Lower deposit rates and higher lending rates
repress savings and financial markets,which in turn hampers the economic growth of the
country. Thus, it is highly essential for the banks to focus their attention on growth of NPAs
and take appropriate measures to regulate their growth.
BIBLIOGRAPHY

Marketing Research: G.C Brek, Tata Mc Graw-Hill Publishing Company Limited, New
Delhi

Periodical: Business Word

Research Methodology: C.R.Kothari , 2nd edition.

S.N Murty and U Bhojanna
Website Address:
http://www.mbaknol.com

http://www.chillibreeze.com

www.scribed.com

www.googlesearch.com

www.rbi.org.in.

http://en.wikipedia.org/wiki/Banking_in_India
http://www.bankingindiaupdate.com/general.html