PROJECT REPORT

ON

“COMPARATIVE ANALYSIS OF NON-PERFORMING ASSETS OF

PRIVATE AND PUBLIC SECTOR BANKS”

SUBMITTED IN PARTIAL FULFILMENT FOR THE AWARD OF THE

DEGREE OF

MASTER OF BUSINESS ADMINISTRATION (BFM)

Session: 2021-2023

Submitted By:- VANSHIKA BHATIA

SAP ID:- 77121819163

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 DECLARATION

I VANSHIKA BHATIA declare that the Research project report entitled

“Comparative Analysis of Non-Performing Assets of Private and Public Sector

Banks” being submitted to the NARSEE MONJEE INSTITUTE OF

MANAGEMENT STUDIES (NGASCE) for the partial fulfillment of the

requirement for the degree of Master of Business Administration (BFM) is my

own endeavors and it has not been submitted earlier to any institution/university for

any degree.

Place: Delhi VANSHIKA BHATIA

Date: 29TH May, 2023 SAP ID:- 77121819163

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 ACKNOWLEDGEMENT

I have taken efforts in this project. However, it would not have been possible without the kind
support and help of many individuals and organizations. I would like to extend my sincere thanks
to all of them.

I am highly indebted to Narsee Monjee Institute of Management Studies (NGASCE) , especially

my counsellors for their guidance and constant supervision as well as for providing necessary
information regarding the project & also for their support in completing the project.

I would like to express my gratitude towards my parents & members of family for their kind co-
operation and encouragement which help me in completion of this project especially the
questionnaires for survey.

My thanks and appreciations also go to my colleague in developing the project and people who
have willingly helped me out with their abilities.

VANSHIKA BHATIA

SAP ID:- 77121819163

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 TABLE OF CONTENTS

CHAPTERS TITLE PAGE

NO.
ABSTRACT 1
INTRODUCTION 3
OBJECTIVES OF THE STUDY 17
REVIEW OF LITERATURE 20
CHAPTER 1 23
RESEARCH METHODOLOGY
25
LIMITATIONS OF THE STUDY
CHAPTER 2 PROFILE OF THE ORGANIZATION 27

ANALYSIS AND
CHAPTER 3
39
INTERPRETATION OF DATA
RECOMMENDATIONS AND 69
CHAPTER 4
CONCLUSIONS

BIBLIOGRAPHY
75
ANNEXURE
77-83
(LIST OF TABLES, LIST OF
FIGURES AND QUESTIONNAIRE)

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 ABSTRACT
A strong banking sector is important for flourishing economy. The failure of the banking
sector may have an adverse impact on other sectors. Non-performing assets are one of the
major concerns for banks in India.
NPAs reflect the performance of banks. A high level of NPAs suggests high probability of a
large number of credit defaults that affect the profitability and net-worth of banks and also
erodes the value of the asset. The NPA growth involves the necessity of provisions, which
reduces the over all profits and shareholders value.
The issue of Non Performing Assets has been discussed at length for financial system all over
the world. The problem of NPAs is not only affecting the banks but also the whole economy.
In fact high level of NPAs in Indian banks is nothing but a reflection of the state of health of
the industry and trade.
The Major Project Report undertaken by me has given us an exposure into the Non- Performing
Assets of Banks in India. The project that was undertaken involves Public & Private Sector Banks
in the country. In this project their Non- Performing Assets have been analyzed on the basis of
various ratios & Questionnaire.
Title of the study is “COMPARATIVE ANALYSIS OF NON PERFORMING ASSETS OF
PRIVATE AND PUBLIC SECTOR BANKS”
As in this report study of NPAs is done, so Non Performing assets means the debt which is given
by the Bank is unable to recover it is called NPA .Non- Performing Asset [NPA] is a resultof asset
Liability mismatch, A NPA account in the books of accounts is an asset as it indicates the amount
receivable from the Defaulters. It means if any bank gives loan to the customer if the interest for
that loan is not paid by the customer till 90 days then that account is called as NPA account.
As the analysis done is of banking sector so we must know about banking. Banking Means
"Accepting Deposits for the purpose of lending or Investment of deposits of money from the
public, repayable on demand or otherwise and withdraw by cheque, draft or otherwise."
As the analysis is on 2 types of banks Public Sector & Private Sector.
The Objectives undertaken in the study were, to understand the concept of Non-Performing Assets
of Public Sector and Private Sector Banks, to evaluate the efficiency in managing Non-

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Performing Assets of Public Sector and Private Sector Banks via comparative ratios, to analyze
the various compositions of the Non-Performing Assets of Public Sector and Private Sector Banks,
to study the impact of Non-Performing Assets on profitability of Public Sector and Private Sector
Banks and to study the various recovery channels for Non-Performing Assets.
The Research Methodology includes the secondary data which consists of the data of NPA of
both the sectors which has been taken from the official website of The Reserve Bank of India and
ratios have been calculated in excel worksheet and questionnaire is made to do survey on NPA.
Everything has some limitations & also this report is not free from limitations & the main
Limitations of the Study are most of the study is based upon Secondary data, the practical
operations as related to NPAs are adopted by the banks are not learned. The solutions are not
applicable to every bank. NPAs are changing with the time. The study is done in the present
environment without foreseeing future developments. The study, as limitations, is confined only
to the selected and restricted indicators and the study is confined only for the period of five years.
The Observations & Findings of the study are based on the results interpreted through the
analysis of the ratios & questionnaire used in this study. From the study it has been observed that
private sector bank, is having a better management of NPA’s in all aspects in comparison of Public
Sector Banks. All the tools whether it is Gross NPA Ratios, Net NPA Ratios, Provisions Ratios
for NPA, Standard, Sub-Standard, Doubtful, Loss Asset Ratios etc. Private Sector Banks have an
upper edge over Public Sector Bank in all of them.
Based on the Findings of the study from the interpretation, there are some Suggestions in light to
them which include trying uplifting business of banking by reducing NPA’s with the help of
various recovery channels like Lok Adalat’s, DTR’s, SARFAESI Act and many more other
channels.
In light of all the above Findings & Suggestions, the Conclusion is that, if the concept of NPAs
is taken very lightly it would be dangerous for the Indian banking sector. The NPAs would destroy
the current profit; interest income due to large provisions of the NPAs, and would affect the smooth
functioning of the recycling of the funds.

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 CHAPTER-1

INTRODUCTION

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 INTRODUCTION
1.1 NON-PERFORMING ASSETS (NPA)
The three letters “NPA” strike terror in banking sector and business circle today. NPA is a short
form of “Non-Performing Assets”. In banking, NPA are loans given to doubtful customers who
may or may not repay the loan on time. There are two types of assets viz. performing and non-
performing. Performing loans are standard loans on which both the principle and interest are
secured and their return is guaranteed.
Non-Performing assets means the debt which is given by the Bank is unable to recover it is called
NPA .Non- Performing Asset [NPA] is a result of asset Liability mismatch, A NPA account in the
books of accounts is an asset as it indicates the amount receivable from the Defaulters. It means if
any bank gives loan to the customer if the interest for that loan is not paid by the customer till 90
days then that account is called as NPA account.
A loans or leases that are not meeting its stated principal and interest payments are considered to
be bad. Banks usually classify as nonperforming assets any commercial loans which are more than
90 days overdue and any consumer loans which are more than 180 days overdue. More generally,
an asset which is not producing income becomes non-performing.

1.2 Definitions
An asset, including a leased asset, becomes Non-Performing when it ceases to generate income for
the bank. A non-performing asset’ (NPA) was defined as a credit facility in respect of which the
interest and/or installment of principal has remained ‘past due’ for a specified period of time. The
specified period was reduced in a phased manner as under:
w.e.f. 31.03.1993 : four quarters
w.e.f. 31.03.1994 : three quarters

w.e.f. 31.03.1995 : two quarters

w.e.f. 31.03.2001 : 180 days

w.e.f. 31.03.2004 : 90 days

Table 1: NPA phases Source: https://www.rbi.org.in/

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With the effect from March 31, 2004, NPA shall be a loan or an advance where:
o Term loan: Interest and /or installment of principal remain over due for a period of
more than 90 days.

o Cash credit/overdraft: The account remains ‘out of order’ for a period of more than
90days.

o Bills: The bill remains overdue for a period of more than 90days from due date of
payment.

o Other Loans: Any amount to be received remains overdue for a period of more than
90days.

o Agricultural Accounts: In the case of agriculture advances, where repayment is

based on income from crop. An account will be classified as NPA as under:

o If loan has been granted for short duration crop: interest and/or installment of
Principal remains overdue for two crop seasons beyond the due date.

o If loan has been granted for long duration crop: Interest and/or installment of
principal remains overdue for one crop seasons beyond due date.

Non-Performing Asset is defined as the loans which are in jeopardy of being default. If a borrower
has failed to pay interest on principal payment for 90 days or more in case of a loan, than that loan
is considered to be non-performing asset (NPA).This kind of thing can be termed as Non-
Performing Loan. NPAs affect the smooth flow of credit and profitability as higher NPAs mean
higher provisioning which reduces s the profit. These are loans and advances whose time period
for payment of interest and principle has exceeded 90 days. In this case the account of person is
marked as out of order. If the loan is granted to a person for agricultural purpose the instalment
period for interest might remain due for two harvest seasons. Non-performing assets tells us about
the banks as the institutions of finance and companies judge their non-performing assets through
NPA and higher the NPA means bad performance of the institute of finance. The banks try their
best to reduce the NPA of the banks as soon as possible to increase their reputation as well as to
increase customer base.

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1.3 NPA as Defined by RBI
Any asset and it also includes leased asset can become Non Performing Asset when income stops
to be generated from it for the bank. It is an advance or loan where;
1) For 90 days’ time interest or installment of principle amount may remain overdue.

2) The account an overdraft or cash credit with respect of it may remain out of order as it is
indicated below.
3) In case the bills are purchased or discounted then they remain overdue for more than 90days
period.

4) The installment for two of the crop seasons for short duration of crops remains overdue whether
it is principal or interest. The installment for long duration crops therefore remains overdue
whether its interest or principal amount.

5) The installment therefore remains overdue for one crop season for long duration crops of
principal or interest.

6) In respect of a securitization transaction that has been undertaken like in terms of guidelines
on securitization on dated February 1, 2006. For more than 90 days the amount of which like of
liquidity facility will remain outstanding.
A debt obligation where the borrower has not paid any previously agreed upon interest and
principal repayments to the designated lender for an extended period of time. The nonperforming
asset is therefore not yielding any income to the lender in the form of principal and interest
payments.
For example, a mortgage in default would be considered non-performing. After a prolonged
period of non-payment, the lender will force the borrower to liquidate any assets that were pledged
as part of the debt agreement. If no assets were pledged, the lenders might write-off the asset as a
bad debt and then sell it at a discount to a collections agency.
An asset becomes non-performing when it ceases to generate income for the bank. A non-
performing asset (NPA) is defined generally as a credit facility in respect of which interest and /
or installment of principal has remained “past due” for two quarters or more. An amount due under
any credit facility is treated as “past due” when it has not been paid within 30 days from the due
date. It was, however, decided to dispense with “past due”.

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Banks should, classify an account as NPA only if the interest charged during any quarter is not
serviced fully within 90 days from the end of the quarter.

1.4 Classification of Assets

1. Standard Assets
Standard asset is one which does not disclose any problem and which does not carry more than
normal risk attached to business. Thus, in general, all the current loans, agricultural and non-
agricultural loans which have not become NPA may be treated as standard asset.

2. Sub-Standard Assets
A Non-performing asset may be classified as sub-standard on the basis of the following criteria.
(a) An asset which has remained overdue for a period not exceeding 3 years in respect of both
agricultural and non-agricultural loans should be treated as substandard. (b) In case of all types
of term loans, where installments are overdue for a period not exceeding 3 years, the entire
outstanding in term loan should be treated as sub-standard. (c) An asset, where the terms and
conditions of the loans regarding payment of interest and repayment of principal have been
renegotiated or rescheduled, after commencement of production, should be classified as sub-
standard and should remain so in such category for at least one year of satisfactory performance
under the renegotiated or rescheduled terms. In other words, the classification of an asset should
not be upgraded merely as a result of rescheduling unless there is satisfactory compliance of the
above condition.

3. Doubtful Asset
A Non-Performing Asset may be classified as doubtful on the basis of following criteria: As
asset which has remained overdue for a period exceeding 3 years in respect of both agricultural
and non-agricultural loans should be treated as doubtful. In case of all types of term loans, where
instalments are overdue for more than 3 years.
The entire outstanding in term loan should be treated as doubtful. As in the case of sub-standard
assets, rescheduling does not entitle a bank to upgrade the quality of advance automatically.

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4. Loss Asset
Loss assets are those where loss is identified by the bank/ auditor/ RBI/ NABARD inspectors but
the amount has not been written off wholly or partly. In other words, an asset which is considered
unrealizable and/ or of such little value that its continuance as a doubtful asset is not worthwhile,
should be treated as a loss asset. Such loss assets will include overdue loans in cases
(a) where decrease or execution petitions have been time barred or documents are lost or no other
legal proof is available to claim the debt, (b) where the members and their sureties are declared
insolvent or have died leaving no tangible assets, (c) where the members have left the area of
operation of the society (refers to the borrower in whose name the respective Loan Account with
SCB/ CCB) leaving no property and their sureties have also no means to pay the dues (d) where
the loan is fictitious or when gross misutilisation is noticed, and (e) amounts which cannot be
recovered in case of liquidated societies.

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1.5 Types of NPA
1. Gross NPA:
Gross NPAs are the sum total of all loan assets that are classified as NPAs as per RBI guidelines
as on Balance Sheet date. Gross NPA reflects the quality of the loans made by banks. It consists
of all the non standard assets like as sub-standard, doubtful, and loss assets.
It can be calculated with the help of following ratio:
Gross NPAs Ratio = Gross NPAs / Gross Advances

2. Net NPA:
Net NPAs are those type of NPAs in which the bank has deducted the provision regarding NPAs.
Net NPA shows the actual burden of banks. Since in India, bank balance sheets contain a huge
amount of NPAs and the process of recovery and write off of loans is very time consuming, the
provisions the banks have to make against the NPAs according to the central bank guidelines, are
quite significant. That is why the difference between gross and net NPA is quite high.
It can be calculated by following:
Net NPAs = Gross NPAs – Provisions / Gross Advances - Provisions

1.6 Why Assets Become NPA

A several factors are responsible forever increasing size of NPAs in PSBs. The Indian banking
industry has one of the highest percent of NPAs compared to international levels. A few prominent
reasons for assets becoming NPAs are as under:
• Lack of proper monitoring and follow-up measures.

• Lack of sincere corporate culture.

• Inadequate legal provisions on foreclosure and bankruptcy.

• Change in economic policies / environment.

• Non transparent accounting policies and poor auditing practices.

• Lack of coordinate between bank/ FIs.

• Directed landing to certain sectors.

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 • Failure on part of the promoters to bring in their portion of equity from their own sources
or public issue due to market turning unfavorable.

• Criteria for classification of assets.

• Classification of agricultural and non-agricultural loans is required to be done into.

1.7 Reason for NPA

An internal study conducted by RBI shows that in the order of prominence, the following factor
contribute to NPAs.
❖ Internal Factor
▪ Diversion of funds for
✓ Expansion/ Diversification/ Modification
✓ Taking up new project
✓ Helping /promoting associate concerns time/cost overrun during the
project implementation stage
▪ Business Failure

▪ Inefficiency in management

▪ Slackness in credit management and monitoring

▪ Inappropriate Technology/technical problem

▪ Lack of coordination among lenders

❖ External Factor
▪ Recession
▪ Input/power storage
▪ Price escalation
▪ Exchange rate fluctuation
▪ Accidents and natural calamities, etc.
▪ Changes in government policies in excise/ import duties, pollution control orders,
etc.

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❖ Other Factor
▪ Liberalization of economy/removal of restriction/reduction of tariffs:-A
large number of NPA borrowers were unable to compete in a competitive market in
which lower prices and greater choices were available to consumers. Further, borrowers
operating in specific industries have suffered due to political, fiscal and social compulsions,
compounding pressures from liberalization.
▪ Lax monitoring of credit and failure to recognize Early Warnings
Signals:-It has been stated that approval of loan proposal is generally thorough and each
proposal passes through many levels before approval is granted. However, the monitoring
of sometimes complex credit files has not received the attention it needed which meant
that early warning signals were not recognized and standard assets slipped to NPA
category without banks being able to take proactive measures to prevent this. Partly due to
this reason, adverse trends in borrower’s performance were not noted andthe position
further deteriorated before action was taken.

▪ Over optimistic promoters:-Promoters were often optimistic in setting up large

projects and in some cases were not fully above board in their intentions. Screening
procedures did not always highlight these issues. Often projects were set up with the
expectation that part of the funding would be arranged from the capital markets which were
booming at the time of the project appraisal. When the capital markets subsequently
crashed, the requisite funds could never be raised, promoter often lost interest and lenders
were left stranded with incomplete/unviable projects.

▪ Directed lending:-Loans to some segment were dictated by Governments policies than

commercial imperatives.

▪ Highly Leveraged borrowers:-Some borrowers were undercapitalized and over

burdened with debt to absorb the changing economic situation in the country. Operating
within a protected marked resulted economic situation in the country. Operating within a
protected market resulted in low appreciation of commercial/market risk.

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 ▪ Funding mismatch:-There are said to be many cases where loans granted for short
terms were used to fund long term transactions.

▪ High Cost of Funds:-Interest rates as high as 20% were not uncommon. Coupled with
high leveraging and falling Denmark, borrowers could not continue to service high cost
debt.

▪ Willful Defaulters:-There are a number of borrowers who have strategically defaulted

on their debt service obligation realizing that the legal resource available to creditors is
slow in achieving results.

1.8 Impact of NPA

1. Profitability:
NPA means booking of money in terms of bad asset, which occurred due to wrong choice of client.
Because of the money getting blocked the prodigality of bank decreases not only by the amount of
NPA but NPA lead to opportunity cost also as that much of profit invested in some return earning
project/asset. So NPA doesn’t affect current profit but also future stream of profit, which may lead
to loss of some long-term beneficial opportunity. Another impact of reduction in profitability is
low ROI (return on investment), which adversely affect current earning of bank.

2. Liquidity:
Money is getting blocked, decreased profit lead to lack of enough cash at hand which lead to
borrowing money for shortest period of time which lead to additional cost to the company.
Difficulty in operating the functions of bank is another cause of NPA due to lack of money. Routine
payments and dues.

3. Involvement of management:
Time and efforts of management is another indirect cost which bank has to bear due to NPA. Time
and efforts of management in handling and managing NPA would have diverted to some

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fruitful activities, which would have given good returns. Now day’s banks have special employees
to deal and handle NPAs, which is additional cost to the bank.

4. Credit loss:
Bank is facing problem of NPA then it adversely affect the value of bank in terms of market credit.
It will lose its goodwill and brand image and credit which have negative impact to the people who
are putting their money in the banks.

1.9 Early Symptoms

By which one can recognize a performing asset turning in to non-performing asset

Four categories of early symptoms:-

Financial:
Non-payment of the very first installment in case of term loan.
Bouncing of cheque due to insufficient balance in the accounts.
Irregularity in installments.
Irregularity of operations in the accounts.
Unpaid overdue bills.
Declining Current Ratio.
Payment which does not cover the interest and principal amount of that installment.
While monitoring the accounts it is found that partial amount is diverted to sister concern
or parent company.

Operational and Physical:

If information is received that the borrower has either initiated the process of winding up
or are not doing the business.
Overdue receivables.
Stock statement not submitted on time.
Frequent changes in plan.

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Attitudinal Changes:
Use of personal comfort, stock and shares by borrower.
Avoidance of contact with banks.
Problem between partners.

Others:
Changes in Government policies.
Death of borrower.
Competition in the market.

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1.10 Norms for Treating Loans / Advances as NPA

➢ Treatment of agricultural advances

In respect of advances granted for agricultural purposes where interest payment is on half-yearly
basis synchronizing with harvest, banks should adopt the agricultural season as the basis. In other
words, if interest has not been paid during the last two seasons of harvest (covering two half- years)
after the principal has become overdue then such an advance should be treated as NPA. This norm
is applicable to all direct agricultural advances listed in the Annexure. In respect of agricultural
advances other than those specified in the Annexure, identification of NPA would bedone on the
same basis as non-agricultural advances which at present are the 180 days delinquency norm. Crop
loans for each season, viz., Rabi and Kharif has to be treated as separate account and IRAC norms
have to be applied accordingly.

➢ Treatment of advances for allied agricultural activities as well as non

farm sector
Credit facilities granted for other allied agricultural activities as well as for non-farm sector
activities should be treated as NPA if amounts of installments of principal and / or interest
remain outstanding for a period of two quarters from the due date.

➢ Project / Housing Loans, etc

In case of projects (industry, plantation, etc.) where moratorium is given for payment, [loan
becomes due only after moratorium or gestation period is over] such a loan becomes overdue if
instalment is not paid on due date. Similarly, in the case of housing loans or similar advances
granted to staff members where interest is payable after recovery of principal, such loans should
be classified as NPA when there is a default in repayment of principal on due date of payment and
overdue criteria will be the basis for classification of assets.

➢ Consortium advances
In respect of consortium advances each bank is required to classify the borrowable accounts
according to its own recovery i.e., on the record of recovery of the individual member banks.

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The banks participating in the consortium should therefore, arrange to get their share of recovery
transferred from the lead bank of the consortium.

➢ Treatment of different facilities to borrower as overdue (NPA)

Short-term agricultural advances are granted by SCBs / CCBs to CCBs PACS respectively for
the purpose of on-lending. In respect of such advances as well as advances for other purposes, if
any, granted under on-lending system, only that particular facility which became irregular should
be treated as NPA and not all the other facilities granted to them. Crop loans for each season,
viz., Rabi and Kharif have to be treated as separate account and accordingly IRAC norms have to
be applied. In respect of all other direct loans and advances granted to a borrower, all such loans
will become NPA even if one loan A/c becomes NPA.

➢ ‘Out of order status’

In respect of cash credit / over draft facility an account should be treated as “out of order”, if the
outstanding balance remains continuously in excess of the sanctioned limit / drawing power. In
cases where the outstanding balance in the principal operating account is less than the sanctioned
limit / drawing power, but there are no credits continuously for six months as on the date of Balance
Sheet or credits are not enough to cover the interest debited during the same period,these
accounts should be treated as “out of order”.

➢ ‘Overdue’
Any amount due to the bank under any credit facility is “overdue”, if it is not paid on due date
fixed by the bank.

➢ Performance of the account as on the date of Balance Sheet

The performance of the account as on the date of Balance Sheet only has to be taken into account
for the purpose of NPA. Subsequent developments should not be considered for determining
NPAs. 2.10. If interest and / or installment of principle have remained unpaid for any two quarters
out of the four quarters ending 31 March of the year concerned, the credit facility shouldbe treated
as NPA although the default may not be continuously for two quarters during the year.

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 OBJECTIVES OF THE STUDY
OBJECTIVES OF THE STUDY
✓ To understand the concept of Non-Performing Assets of Public Sector and Private Sector
Banks.
✓ To study of the concept of Non Performing Asset in Indian perspective.
✓ To study NPA standard of RBI.
✓ To study the Reasons for & Impact of NPAs.
✓ To evaluate the efficiency in managing Non Performing Asset of different types of banks
(Public, Private & Foreign banks) using NPA ratios & comparing NPA with profits.
✓ To check the proportion of NPA of different types of banks in different categories.
✓ To evaluate the efficiency in managing Non-Performing Assets of Public Sector and
Private Sector Banks via comparative ratios.
✓ To analyze the various compositions of the Non-Performing Assets of Public Sector and
Private Sector Banks.
✓ To study the impact of Non-Performing Assets on profitability of Public Sector and
Private Sector Banks.
✓ To study the various recovery channels for Non-Performing Assets.
✓ What types of challenges banking industry is facing with special reference to NPA.
✓ How bank cope with NPA and its impact in recent economic crisis.
✓ To find the factors that would effect level of NPAs.
✓ To analyze the significance of each variable that might effect the NPA level..
✓ To understand what is Non Performing Assets and what are the underlying reasons for
the emergence of the NPAs.
✓ To understand the impacts of NPAs on the operations of the banks.
✓ To know what steps are being taken by the Indian banking sector to reduce the NPAs?
✓ To evaluate the comparative ratio of the banks with concerned to the NPAs.

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SCOPE OF THE STUDY
➢ The present study of the non performing assets is confined restricted to the boundary of
public sector and private sector bank of India.
➢ To understand the causes & effects of NPA.
➢ To analyze the past trends of NPA of public & private in different sector.
➢ Banks can improve their financial position or can increase their income from credits with
the help of this project.
➢ This can also be applicable to know the reasons of increase in NPAs.

NEEDS OF THE STUDY

The banks not only accept the deposits of the people but also provide them credit facilities for their
development. Indian banking sector has the nation in developing the business and service sectors.
But recently the banks are facing the problem of credit risk. It is found that many general people
and business people borrow from the banks but due to some genuine or other reasons are not able
to repay back the amount drawn to the banks. The amount which is not given back to the banks is
known as the non performing assets. Many banks are facing the problem of NPAs which hampers
the business of the banks. Due to NPAs the income of the banks is reduced and the banks have to
make the large number of the provisions that would curtail the profit of the banks and due to that
the financial performance of the banks would not show good results.

The main aim behind making this report is to know how public sector banks are operating their
business and how NPAs play its role to the operations of the public sector banks. The report NPAs
are classified according to the sector, industry, and state wise. The present study also focuses on
the existing system in India to solve the problem of NPAs and comparative analysisto understand
which bank is playing what role with concerned to NPAs.

Thus, the study would help the decision makers to understand the financial performance and
growth of public sector banks as compared to the NPAs. This report explores an empirical
approach to the analysis of Non-Performing Assets (NPAs) with reference of private and public
sector banks in India.

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BENEFICIARIES OF THE STUDY
The outcomes analyzed from this study would be beneficial to various sections such as:
Banks

This study would definitely benefit the banks in a way that directs them as to which sector
should be given priority for lending money.

Further Researchers

The major beneficiaries from the project would be the researchers themselves as this study
would enhance their knowledge about the topic. They get an insight of the present scenario of
this industry as this is the emerging industry in the financial sector of the economy.

Student

To get the understanding of NPA concept as a whole.

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 LITERATURE REVIEW
NPA is a burning topic for the banking sector and many authors tried to study the reasons of NPA,
the problems created by NPA and the impact of NPA on the banking sector, and moreover came
to a solution or remedies of the growing problem of NPA. A number of papers have been written
and gone through, and this part of this paper is attempting to present a review of all those are
available in the same area of non-performing assets of the public sector banks, private sector banks
and other banks. This survey has conducted a study on the existing papers, articles, journals, and
reports provided by different authors, groups and committees from time to time.

A large number of researchers have been studied to the issue of non performing asset (NPA) in
banking industry. A review of the relevant literature has been described as under:-

Luther (1976) chaired the committee appointed by Reserve Bank of India to study the
productivity, efficiency and profitability of commercial banks. The committee analyzed the
various issues related to the planning, budgeting and marketing in commercial banks.

Rajaraman, I.,Vasishtha, G. (2001): The paper performs a panel regression on the definitional
uniform secondary data, on NPA available for a five-year period ending in 1999-2000. The paper

20
studies 27 public sector banks, and investigates variations within a class that is homogenous on
the ownership dimension and operational efficiency.

Reddy, P.K. (2002): This paper deals with the experiences of other Asian countries in handling
of NPAs. It further looks into the effect of the reforms on the level of NPAs and suggests
mechanisms to handle the problem by drawing on experiences from other countries.

Satpathy, I, Patnaik, B.C.M. (2010): The present paper attempted to examine the causes of NPAs
in home loans of commercial banks. For this borrowers of the loans were surveyed through
questionnaires made for the purpose, and ultimately suggestions given to overcome the problem.

Patnaik, B.C.M., Satpathy, I. (2011): The present paper tries to analyze the quantitative trend
and pattern in growth of NPA with reference to the education loan scheme, in Odisha. An effort
was made to find the cause, by questionnaire survey of the defaulters, who are students of different
colleges, suggestions to overcome this problem was also given by the author.

Kumar, M.,Singh, G. (2012): The paper focuses on the most significant factors, which contribute
towards the non-performing assets problem from the view point of the top bankers of public sector
banks and, some foreign banks in India and the measures required for managing theNPAs

Pradhan, T.K. (2012): The present study is on Odisha, and depends on the mismanagement or
diversion of fund, which are one of the main causes of NPA. The study is based on primary data
which has been analyzed by percentage method. The data was collected from 50 bank officials
through a structured questionnaire.

Gupta, B. (2012): In this paper, study has been made on SBI and Associates, and public sector
banks, an effort has been made to understand the concept of NPAs, its magnitude and major causes
for increasing NPA and also evaluate the operational performance in managing NPA.

21
Kamra, S. D. (2013): This paper analyses the position of NPAs in the selected nationalized banks
namely State Bank of India (SBI), Punjab National Bank (PNB) and Central Bank of India(CBI).
It also focuses on the policies pursued by the banks to manage the NPAs andsuggests a
strategy for the speedy recovery of NPAs.

Srinivas, K.T. (2013): The present paper undertakes to study the reasons for loans and advances
becoming NPA in the Indian Commercial banking Sector and give a suitable solution to overcome
the mentioned problem.

Dutta.A(2014): This paper studied the growth of NPA in the public and private sector banks in
India, and analysed sector wise non-performing assets of the commercial banks. For the purpose
of the study data has been collected from secondary sources such as report on Trend and Progress
of Banking in India, RBI, Report on Currency and Finance, RBI Economic Surveys of India.

Tripathi, L. K., Parashar, A., Mishra, S. (2014): The present study, with the help of multiple
regression model attempts to investigate the impact of priority sector advances, unsecured
advances and advances made to sensitive sectors by banks like SBI group and other nationalised
banks on Gross NPAs of banks.

Arora, N., Ostwal, N. (2014): The present paper analyses the classification and comparison of
loan assets of public and private sector banks. The study concluded that NPAs are still a threat
for the banks and financial institutions and public sector banks have higher level of NPAs in
comparison to Private sector banks.

Research and Time gap in Literature

The different aspects of literature related to Non-Performing Assets of researchers over the years
have been collected and used for this study, but there is a huge time gap existing for the
comprehensive research on quality aspects of Non-Performing Assets. Most of the research and
studies are being done on causes, impact and management aspects of NPAs. My study is related
to the impact of NPA’s in public and private sector banks.

22
 RESEARCH METHODOLOGY

The research methodology means the way in which we would complete our prospected task.
I have adopted the following procedure in completing my study report:
❖ Formulating the problem
❖ Research design
❖ Determining the data sources
❖ Analyzing the data
❖ Interpretation
❖ Preparing research report

(1) Formulating The Problem

I analyzed first the factors that are important for the banking sector and I came to know that
providing credit facility to the borrower is one of the important factors as far as the banking sector
is concerned.

(2) Research Design

The research design tells about the mode with which the entire project is prepared. My research
design for this study is basically descriptive . Because I have utilized the large number of data of
the banks.

23
(3) Determining The Data Source
The data source can be primary or secondary. The primary data are those for data which are used
for the first time in the study. Whereas the secondary data are those data which are already
available in the market.
Sources Of Secondary Data
▪ Annual reports of banks
▪ Reports of RBI
▪ Internet
▪ Books etc.
Source Of Primary Data
▪ Questionnaire

(4) Analyzing The Data

The primary data would not be useful until and unless they are well edited, tabulated and
analyzed. When the person receives the primary data many not useful data would also be there.
Basic tools which I used for project from statistics are-
• Charts
• Tables
Technological Tools
• Ms- Excel
• Ms-Word

(5) Interpretation Of The Data

The analyzing of data would not help the study to reach towards its objectives. The interpretation
of the data is required so that the others can understand the crux of the study.

(6) Project Writing

This is the last step in preparing the project report. The objective of the report writing was to
report the finding of the study to the concerned authorities.

24
 LIMITATIONS OF THE STUDY

The limitation that I felt in my study are:

It was critical for me to gather the financial data of the every bank of the public sector
banks so the better evaluation of the performance of the banks are not possible.
Since the Indian banking sector is so wide so it was possible for me to cover all the
aspects.
Since my study is based upon Secondary data, the practical operations as related to
NPAs are adopted by the banks are not learned.
NPAs are changing with the time. The study is done in the present environment without
foreseeing future developments.
The study is based on secondary data as published in various publications of RBI and
other reports. These data are based on historical accounting concept.
The study, as limitations, is confined only to the selected and restricted indicators and
the study is confined only for the period of five years.
While there are many positives to questionnaires, dishonesty can be an issue.

25
 When using questionnaires, there is a chance that some questions will be ignored or left
unanswered.
The trouble with not presenting questions to users face-to-face is that each may have
different interpretations of your questions.
A survey or questionnaire cannot fully capture emotional responses or feelings of
respondents. Without administering the questionnaire face-to-face, there is no way to
observe facial expression, reactions or body language.
Open-ended questions allow for individualized answers which cannot be quantified and
must be reviewed by a human.
As with any sort of research, respondent bias can be an issue.
If you’re unable to add touches of personalization, some potential respondents may be put
off and ignore it.
Every administrator hopes for conscientious responses, but there’s no way to know if the
respondent has really understood the question or read it thoroughly before answering.
No matter what form of delivery is used, lack of accessibility is a threat.

We’ve all received survey invitations and the trend of companies using customer feedback
surveys is up. This means that some level of survey fatigue is setting in with respondents.

26
 CHAPTER-2

PROFILE OF THE
ORGANIZATION

27
 INTRODUCTION
A strong banking sector is important for flourishing economy. One of the most important and
major roles played by banking sector is that of lending business. It is generally encouraged because
it has the effect of funds being transferred from the system to productive purposes, which also
results into economic growth. As there are pros and cons of everything, the same is with lending
business that carries credit risk, which arises from the failure of borrower to fulfill its contractual
obligations either during the course of a transaction or on a future obligation. The failure of the
banking sector may have an adverse impact on other sectors. Non- performing assets are one of
the major concerns for banks in India. NPAs reflect the performance of banks.A high level of
NPAs suggests high probability of a large number of credit defaults that affectthe profitability
and net-worth of banks and also erodes the value of the asset. The NPA growth involves the
necessity of provisions, which reduces the overall profits and shareholders’ value. The issue of
Non- Performing Assets has been discussed at length for financial system all over the world. The
problem of NPAs is not only affecting the banks but also the whole economy. In fact high level of
NPAs in Indian banks is nothing but a reflection of the state of health of the industry and trade.
This project deals with understanding the concept of NPAs, its magnitude andmajor causes for an
account becoming non-performing, projection of NPAs over next years in banks and concluding
remarks.
The magnitude of NPAs have a direct impact on Banks profitability legally they are not allowed
to book income on such accounts and at the same time banks are forced to make provisions on
such assets as per RBI guidelines The RBI has advised all State Co-operative Banks as well as
the Central Co-operative Banks in the country to adopt prudential norms from the year ending 31-
03-1997. These have been amended a number of times since 1997. As per their guidelines the
meaning of NPAs, the norms regarding assets classification and provisioning Its now veryknown
that the banks and financial institutions in India face the problem of amplification of non-
performing assets (NPAs) and the issue is becoming more and more unmanageable. In order to
bring the situation under control, various steps have been taken. Among all other steps most
important one was the introduction of Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 by Parliament, which was an important step towards
elimination or reduction of NPAs.

28
An asset is classified as non-performing asset (NPAs) if dues in the form of principal and interest
are not paid by the borrower for a period of 180 days, however with effect from March 2004,
default status would be given to a borrower if dues are not paid for 90 days. If any advance or
credit facility granted by 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. The NPA level of our banks is way high than international standards. One
cannot ignore the fact that a part of the reduction in NPA’s is due to the writing off bad loans by
banks. Indian banks should take care to ensure that they give loans to credit worthy customers. In
this context the dictum “prevention is always better than cure” acts as the golden rule to reduce
NPA’s.

2.1 INDIAN BANKING SECTOR

Banking in India has its origin as early as the Vedic period. It is believed that the transition from
money lending to banking must have occurred even before Manu, the great Hindu Jurist, who has
devoted a section of his work to deposits and advances and laid down rules relating to ratesof
interest. During the Mogul period, the indigenous bankers played a very important role in lending
money and financing foreign trade and commerce. During the days of the East India Company, it
was the turn of the agency houses to carry on the banking business. The General Bank of India
was the first Joint Stock Bank to be established in the year 1786. The others whichfollowed were
the Bank of Hindustan and the Bengal Bank. The Bank of Hindustan is reportedto have continued
till 1906 while the other two failed in the meantime. In the first half of the 19th century the East
India Company established three banks; the Bank of Bengal in 1809, the Bank of Bombay in 1840
and the Bank of Madras in 1843. These three banks also known as Presidency Banks were
independent units and functioned well. These three banks were amalgamated in 1920 and a new
bank, the Imperial Bank of India was established on 27thJanuary 1921. With the passing of the
State Bank of India Act in 1955 the undertaking of the Imperial Bank of India was taken over by
the newly constituted State Bank of India. Now, the State Bank of India constituted of 6 public
sector banks as its associates. The recent one to join the associates of State Bank of India is
Bharatiya Mahila Bank.

29
The Reserve Bank which is the Central Bank was created in 1935 by passing Reserve Bank of
India Act 1934. In the wake of the Swadeshi Movement, a number of banks with Indian
management were established in the country namely, Punjab National Bank Ltd, Bank of India
Ltd, Canara Bank Ltd, Indian Bank Ltd, the Bank of Baroda Ltd, the Central Bank of India Ltd.
On July 19, 1969, 14 major banks of the country were nationalized and in 15th April 1980 six
more commercial private sector banks were also taken over by the government.

30
2.2 History of Banking in India
The first bank in India, though conservative, was established in 1786. From 1786 till today, the
journey of Indian Banking System can be segregated into three distinct phases:

✓ Early phase of Indian banks, from 1786 to 1969

✓ Nationalization of banks and the banking sector reforms, from 1969 to 1991
✓ New phase of Indian banking system, with reforms from 1991

Phase 1
The first bank in India, the General Bank of India, was set up in 1786. Bank of Hindustan and
Bengal Bank followed. The East India Company established Bank of Bengal (1809), Bank of
Bombay (1840), and Bank of Madras (1843) as independent units and called them Presidency
banks. These three banks were amalgamated in 1920 and the Imperial Bank of India, a bank of
private shareholders, mostly Europeans, was established. Allahabad Bank was established,
exclusively by Indians, in 1865.
Punjab National Bank was set up in 1894 with headquarters in Lahore. Between 1906 and 1913,
Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and Bank of
Mysore were set up. The Reserve Bank of India came in 1935.
During the first phase, the growth was very slow and banks also experienced periodic failures
between 1913 and 1948. There were approximately 1,100 banks, mostly small. To streamline the
functioning and activities of commercial banks, the Government of India came up with the
Banking Companies Act, 1949, which was later changed to the Banking Regulation Act, 1949 as
per amending Act of 1965 (Act No. 23 of 1965).
The Reserve Bank of India (RBI) was vested with extensive powers for the supervision of banking
in India as the Central banking authority. During those days, the general public had lesser
confidence in banks. As an aftermath, deposit mobilization was slow. Moreover, the savings bank
facility provided by the Postal department was comparatively safer, and funds were largely given
to traders. This helps the traders for the better fulfillment of services by them and also helps in the
trading of the goods and services. This provide better scope of development for the traders but this
type of banking system is core focused towards businessman rather than the general public.

31
Phase 2
The government took major initiatives in banking sector reforms after Independence. In 1955, it
nationalized the Imperial Bank of India and started offering extensive banking facilities, especially
in rural and semi-urban areas. The government constituted the State Bank of India to act as the
principal agent of the RBI and to handle banking transactions of the Union government and state
governments all over the country. Seven banks owned by the Princely states were nationalized in
1959 and they became subsidiaries of theState Bank of India. In 1969, 14 commercial banks in the
country were nationalized. In the second phase of banking sector reforms, seven more banks were
nationalized in 1980. With this, 80 percent of the banking sector in India came under the
government ownership.

Phase 3
This phase has introduced many more products and facilities in the banking sector as part of the
reforms process. In 1991, under the chairmanship of M Narasimham, a committee was set up,
which worked for the liberalization of banking practices. Now, the country is flooded with foreign
banks and their ATM stations. Efforts are being put to give a satisfactory service to customers.
Phone banking and net banking are introduced. The entire system became more convenient and
swift. Time is given importance in all money transactions.
The financial system of India has shown a great deal of resilience. It is sheltered from crises
triggered by external macroeconomic shocks, which other East Asian countries often suffered.
This is all due to a flexible exchange rate regime, the high foreign exchange reserve, the not-yet
fully convertible capital account, and the limited foreign exchange exposure of banks and their
customers.

2.3 Banking Activities

➢ Retail banking, dealing directly with individuals and small businesses.

➢ Business banking, providing services to mid-market businesses.

➢ Corporate banking, directed at large business entities.

➢ Private banking, providing wealth ,management services to high net worth individuals.

32
➢ Investment banking, activities in the financial markets, such as "underwrite" (guarantee the
sale of) stock and bond issues, trade for their own accounts, make markets, and advise
corporations on capital market activities like mergers and acquisitions.

➢ Merchant banking is the private equity activity of investment banks.

➢ Financial services, global financial institutions that engage in multiple activities such as
banking and insurance.

33
2.4 Public Sector Banks
PSBs are banks where a majority stake (i.e. more than 50%) is held by a government. The shares
of these banks are listed on stock exchanges. There are a total of 12 PSBs in India [11nationalized
banks + 7 State bank group (SBI + 6 associates)].
In 2011 IDBI bank and in 2014 Bharatiya Mahila Bank were nationalized with a minimum capital
of Rs 500 cr.

Emergence of public sector banks

The Central Government entered the banking business with the nationalization of the Imperial
Bank of India in 1955. A 60% stake was taken by the Reserve Bank of India and the new bank was
named as the State Bank of India. The seven other state banks became the subsidiaries of the new
bank when nationalized on 19 July 1960. The next major nationalization of banks took place in
1969 when the government of India, under Prime Minister Indira Gandhi, nationalized an
additional 14 major banks. The total deposits in the banks nationalized in 1969 amounted to 50
crores. This move increased the presence of nationalized banks in India, with 84% of the total
branches coming under government control.
The next round of nationalization took place in April 1980. The government nationalized six
banks. The total deposits of these banks amounted to around 200 crores. This move led to a further
increase in the number of branches in the market, increasing to 91% of the total branch network
of the country. The objectives behind nationalization were:
➢ To break the ownership and control of banks by a few business families,

➢ To prevent the concentration of wealth and economic power,

➢ To mobilize savings from masses from all parts of the country,

➢ To cater to the needs of the priority sectors.

Total public sector banks are 27 including IDBI and BMB

Some Public Sector Banks are which comprises nationalized banks and SBI and its associates are
shown in the table.

34
 Nationalized Banks
Sr. No. Names
1 Bank of Baroda (Dena Bank and Vijaya Bank merged)
2 Bank of India
3 Bank of Maharashtra
4 Canara Bank (Syndicate Bank merged)
5 Central Bank of India
6 Indian Bank (Allahabad Bank merged)
7 Indian Overseas Bank
8 Punjab National Bank (United Bank of India and Oriental Bank of
Commerce merged)
9 Punjab & Sind Bank
10 State Bank of India
11 Union Bank of India ( Corporation Bank and Andhra Bank merged)
12 UCO Bank
Table 2: List of Nationalized Banks Source: https://www.rbi.org.in/

State Bank of India and its Associates

Sr. No. Names
1 State Bank of Bikaner & Jaipur
2 State Bank of Patiala
3 State Bank of Hyderabad
4 State Bank of Mysore
5 State Bank of Travancore
6 Bharatiya Mahila Bank
Table 3: List of State Bank of India & its Associates Source: https://www.rbi.org.in/

35
2.5 Private Sector Banks
The private-sector banks in India represent part of the Indian banking sector that is made up of
both private and public sector banks. The "private-sector banks" are banks where greater parts of
state or equity are held by the private shareholders and not by government.
Banking in India has been dominated by public sector banks since the 1969 when all major banks
were nationalized by the Indian government. However, since liberalization in government banking
policy in the 1990s, old and new private sector banks have re-emerged. They havegrown
faster & bigger over the two decades since liberalization using the latest technology, providing
contemporary innovations and monetary tools and techniques.
The private sector banks are split into two groups by financial regulators in India, old and new.
The old private sector banks existed prior to the nationalization in 1969 and kept their
independence because they were either too small or specialist to be included in nationalization.
The new private sector banks are those that have gained their banking license since the
liberalization in the 1990s.

Old Private Sector Bank

The banks, which were not nationalized at the time of bank nationalization that took place during
1969 and 1980, are known to be the old private-sector banks. These were not nationalized, because
of their small size and regional focus. Most of the old private-sector banks are closely held by
certain communities their operations are mostly restricted to the areas in and around theirplace of
origin. Their Board of directors mainly consist of locally prominent personalities from trade and
business circles. One of the positive points of these banks is that, they lean heavily on service and
technology and as such, they are likely to attract more business in days to come with the
restructuring of the industry round the corner.

New Private Sector Bank

The banks, which came in operation after 1991, with the introduction of economic reforms and
financial sector reforms are called " private-sector banks". Banking regulation act was then
amended in 1993, which permitted the entry of new private-sector banks in the Indian banking
sector. However, there were certain criteria set for the establishment of the new private sector

36
banks, some of those criteria being: The bank should have a minimum net worth of Rs. 200
crores.
1. The promoters holding should be a minimum of 25% of the paid-up capital.

2. Reliance Capital, India Post, Larsen & Toubro, Shriram Transport Finance are companies
pending a banking license with the RBI under the new policy, while IDFC & Bandhan were given
a go ahead to start banking services for 2015.

3. Within 3 years of the starting of the operations, the bank should offer shares to public and their
net worth must increased to 300 crores.

List of the private-sector banks in India

Sr. Name
No.
1 Axis Bank
2 Bandhan Bank
3 Catholic Syrian Bank ltd
4 City Union Bank limited
5 DCB Bank Limited
6 Dhanlaxmi Bank
7 Federal Bank
8 HDFC Bank
9 ICICI Bank
10 IDBI Bank
11 IDFC Bank
12 IndusInd Bank
13 Jammu & Kashmir Bank ltd
14 Karnataka Bank ltd

37
15 Karur Vysya Bank
16 Kotak Mahindra Bank ltd
17 Lakshmi Vilas Bank
18 Nainital Bank
19 RBL
20 South Indian Bank
21 Tamilnad Mercantile Bank ltd
22 Yes Bank ltd.
Table 4: List of Private Sector Banks Source: https://www.rbi.org.in/

38
 CHAPTER-3

ANALYSIS AND
INTERPRETATION OF DATA

39
 Measures Initiated By RBI and Government of India
For Reduction of NPA’s

1. Compromise settlement schemes :

The RBI / Government of India have been constantly goading the banks to take steps for arresting
the incidence of fresh NPAs and have also been creating legal and regulatory environment to
facilitate the recovery of existing NPAs of banks. More significant of them, I would like to
recapitulate at this stage.
The broad framework for compromise or negotiated settlement of NPAs advised by RBI in July
1995 continues to be in place. Banks are free to design and implement their own policies for
recovery and write-off incorporating compromise and negotiated settlements with the approval
of their Boards, particularly for old and unresolved cases falling under the NPA category.

Negotiating for compromise settlements;

The first crucial step towards meaningful NPA management is to accept that recoveries are one's
own responsibility. To keep the Bank's operating cycle going smoothly, it is essential that this
realization of one's duties be transformed into deeds by resorting to various methods of recovery.
Of the various methods available for NPA Management, Compromise Settlements are the most
attractive, if handled in a professional manner.

Advantages
i) Saves money, time and manpower
Banks are mainly concerned with recovery of dues, to the maximum possible extent, at minimum
expense. By entering into compromise settlements, the objective is achieved.

ii) Projects a helpful image of the Bank

A well-concluded compromise settlement, which results in a ‘WIN-WIN’ for the Bank as well as
the borrower, is a strong positive propaganda for the Bank.

40
iii) Expedites recycling of funds
Compromise settlements aim at quick recovery. Recovery means funds becoming available for
recycling and, additional interest generation.

iv) Cleanses Balance Sheet

With the NPA level going down, and the additional funds becoming available for recycling as
fresh advances, the asset quality of the Bank is bound to go up. Improved asset quality signifies
higher profits by reduced provisions and increased interest income.

Disadvantages
i. Compromise involves loss, since full recovery is not possible. In fact, full recovery is not even
envisaged, but sacrifice is.

ii. It may be viewed as a reward for default, especially if chronic default cases are settled by
negotiations.

iii. It may have a demonstrative effect, and so may vitiate the culture of repayment.
iv. There is also the possibility of misuse or, even, mala fides, since assessment of situation is
highly subjective.

Practical aspects of compromise settlements

Every compromise proposal needs to be looked at individually, evaluated strictly on merits, and
negotiated properly for maximization of benefit to the Bank. Hence, a straight jacket approach is
not possible, neither is it desirable, to give strict guidelines for compromise settlements.

2. Restructuring and Rehabilitation

Banks are free to design and implement their own policies for restructuring/ rehabilitation of the
NPA accounts Reschedule of payment of interest and principal after considering the Debt service
coverage ratio, contribution of the promoter and availability of security.

41
3. LokAdalats
LokAdalat institutions help banks to settle disputes involving accounts in “doubtful” and “loss”
category, with outstanding balance of Rs.5 lakh for compromise settlement under LokAdalats. The
public sector banks had recovered Rs.40.38 crore as on September 30, 2001, through the forum of
LokAdalat.

4. Debt Recovery Tribunals

The Recovery of Debts due to Banks and Financial Institutions (amendment) Act, passed in March
2000 has helped in strengthening the functioning of DRTs. Provisions for placement of more than
one Recovery Officer, power to attach defendant’s property/assets before judgment, penal
provisions for disobedience of Tribunal’s order.

5. Circulation of information on defaulters

The RBI has put in place a system for periodical circulation of details of wilful defaults of
borrowers of banks and financial institutions. This serves as a caution list while considering
requests for new or additional credit limits from defaulting borrowing units and also from the
directors /proprietors / partners of these entities.

6. Recovery action against large NPAs

After a review of pendency in regard to NPAs by the Honourable Finance Minister, RBI had
advised the public sector banks to examine all cases of wilful default of Rs 1 crore and above and
file suits in such cases, and file criminal cases in regard to wilful defaults.

7. Asset Reconstruction Company:

An Asset Reconstruction Company with an authorized capital of Rs.2000 crore and initial paid up
capital Rs.1400 crore is to be set up as a trust for undertaking activities relating to asset
reconstruction. It would negotiate with banks and financial institutions for acquiring distressed
assets and develop markets for such assets. Government of India proposes to go in for legal reforms
to facilitate the functioning of ARC mechanism.

42
8. Legal Reforms
The Honourable Finance Minister in his recent budget speech has already announced the proposal
for a comprehensive legislation on asset foreclosure and Securitization. Since enacted by way of
Ordinance in June 2002 and passed by Parliament as an Act in December 2002.

9. Corporate Debt Restructuring (CDR)

Corporate Debt Restructuring mechanism has been institutionalized in 2001 to provide a timely
and transparent system for restructuring of the corporate debts of Rs.20 crore and above with the
banks and financial institutions. The CDR process would also enable viable corporate entities to
restructure their dues outside the existing legal framework and reduce the incidence of fresh NPAs.

10. Credit Information Bureau

Institutionalization of information sharing arrangements through the newly formed Credit
Information Bureau of India Ltd. (CIBIL) is under way. RBI is considering the recommendations
of the S.R.Iyer Group (Chairman of CIBIL) to operationalise the scheme of information
dissemination on defaults to the financial system.

11. Proposed guidelines on wilful defaults/diversion of funds

RBI is examining the recommendation of Kohli Group on wilful defaulters. It is working out a
proper definition covering such classes of defaulters so that credit denials to this group of
borrowers can be made effective and criminal prosecution can be made demonstrative against
wilful defaulters.

12. 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, etc.

43
 QUESTIONNAIRE RESPONSES ANALYSIS

1. Awareness Regarding NPA:

Table:
OPTIONS Yes No Total

RESPONSES 24 6 30

PERCENTAGE 80 20 100%

Table 5: Awareness Regarding NPA Source: Questionnaire Responses

Chart:

Chart 1: Awareness Regarding NPA Source: Questionnaire Responses

Interpretation:
It was found that about 80% of the respondents know about NPA in context of banks
as compared to 20% of respondents who have no knowledge about the NPA in
context of banks. Those 20% respondents did some research on NPA before filling
that form for the project report on the comparative analysis of NPA in Private and
Public sector banks.

44
2. Definition of NPA :
Table:
OPTIONS When an assets If the customers donot If periodical income is Total
ceases to generate pay principal and generated for lender
income from the interest for a certain of money.
bank. period of time.

RESPONSES 5 21 4 30

PERCENTAGE 16.7 70 13.3 100%

Table 6: Definition of NPA Source: Questionnaire Responses

Chart:

Chart 2: Definition of NPA Source: Questionnaire Responses

Interpretation:
It was found that about 70% of the respondents know the exact definition of NPA
in context of banks. The 16.7% respondents think that in it the assets ceases to
generate income for the bank. Other 13.3% think that NPA is if periodical income is
generated for lender of money. So, most of the peope know about NPA as compared
in this survey.

45
3. Functioning of Branch:
Table:
OPTIONS 0-2 Years 3-5 Years 6-10 Years Above 10 Total
Years

RESPONSES 3 3 9 15 30

PERCENTAGE 10 10 30 50 100%

Table 7: Functioning of Branch Source: Questionnaire Responses

Chart:

Chart 3: Functioning of Branch Source: Questionnaire Responses

Interpretation:
It was found that about 50% of the respondents banks were functioning for more
than 10 years. After that 30% of the respondents have banks that function for more
than 6 years but less than 10 years. 20% of respondents have banks that function
for at least 5 years. These respondents have generally Private sector banks that are
new in banking sector.

46
4. Presence of NPA in Respondents Branch:
Table:
OPTIONS 0-2 Years 3-5 Years 6-10 Years Above Total
10 Years

RESPONSES 3 6 9 12 30

PERCENTAGE 10 20 30 40 100%

Table 8: Presence of NPA in Respondents Branch Source: Questionnaire Responses

Chart:

Chart 4: Presence of NPA in Respondents Branch Source: Questionnaire Responses

Interpretation:
It was found that about 40% of the respondents banks have presence of NPA for
more than 10 years. After that 30% of the respondents have banks that have presence
of NPA for more than 6 years but less than 10 years. 30% of respondents have banks
that experience presence of NPA for at least 5 years. These respondents have
generally Private sector banks that are new in banking sector.

47
5. % of NPA in Respondents Branch:
Table:
OPTIONS 1-4% 4-7% 7-10% Above 10% Total

RESPONSES 6 9 9 6 30

PERCENTAGE 20 30 30 20 100%

Table 9: % of NPA in Respondents Branch Source: Questionnaire Responses

Chart:

Chart 5: % of NPA in Respondents Branch Source: Questionnaire Responses

Interpretation:
It was found that about 20% of the respondents banks have presence of 4-7% of
NPA. The other 30% of the respondents banks have also 7-10% of NPA. Around
20% of the respondents banks have above 10% of NPA which is quite high. The
other 20% of the banks of the respondents have 1-4% of NPA which is low.

48
6. Category in Which NPA is Observed:
Table:
OPTIONS Personal Loan Vehicle Housing Agriculture Total
Loan Loan Loan

RESPONSES 18 2 4 6 30

PERCENTAGE 60 7.7 13.3 20 100%

Table 10: Category in Which NPA is Observed Source: Questionnaire Responses

Chart:

Chart 6: Category in Which NPA is Observed Source: Questionnaire Responses

Interpretation:
It was found that about 60% of the respondents think that the category in which most
the NPA fall is Personal loan. On the other hand, 20% the respondents put focus on
the Agriculture loan. The other 7.7% and 13.3% focus on vehicle and housing loan
respectively.

49
7. Knowledge about NPA’s Impact on Economy:
Table:
OPTIONS Through bank Through the Through News and Total
employees RBI website journals, Newspaper
magazines and
articles

RESPONSES 8 6 10 6 30

PERCENTAGE 26.7 20 33.3 20 100%

Table 11: Knowledge about NPA’s Impact on Economy Source: Questionnaire Responses
Chart:

Chart 7: Knowledge about NPA’s Impact on Economy Source: Questionnaire Responses

Interpretation:
It was found that about 33.3% of the respondents know about the impact of NPA
ON Indian economy through the help of journals, magazines and articles. 26.7% of
respondents get that information through bank employees. 20% of them take help
of RBI websites and other 20% take help of news and newspaper.

50
8. Trend of NPA in Respondents Bank:
Table:
OPTIONS Highly Slowly Constant Slowly Highly Total
Decreasing Decreasing Increasing Increasing

RESPONSES 5 11 4 7 3 30

PERCENTAGE 16.7 36.7 13.3 23.3 10 100%

Table 12: Trend of NPA in Respondents Bank Source: Questionnaire Responses

Chart:

Chart 8: Trend of NPA in Respondents Bank Source: Questionnaire Responses

Interpretation:
It was found that about 36.7% of the respondents think that the trend of NPA is
slowly decreasing in their bank. 23.3% of them think NPA is slowly increasing in
their banks. 16.7% and 13.3% of them think that NPA is highly decreasing and
highly increasing respectively. 10% of them think that NPA is constant in their banks
as per latest trend.

51
9. NPA Asset Changed From 180 to 90 Days:
Table:
OPTIONS Yes No Total

RESPONSES 24 6 30

PERCENTAGE 80 20 100%

Table 13: NPA Asset Changed From 180 to 90 Days Source: Questionnaire Responses
Chart:

Chart 9: NPA Asset Changed From 180 to 90 Days Source: Questionnaire Responses

Interpretation:
It was found that about 80% of the respondents have idea about the change in the
asset called NPA after 180 days but later changed to 90 days as per RBI guidelines.
About 20% of the respondents have no idea about that change that take place in terms
of NPA. This is due to they do not pay attention about the various aspects of banks.

52
10. Classification of NPA Assets:
Table:
OPTIONS Yes No Total

RESPONSES 21 9 30

PERCENTAGE 70 30 100%

Table 14: Classification of NPA Assets Source: Questionnaire Responses

Chart:

Chart 10: Classification of NPA Assets Source: Questionnaire Responses

Interpretation:
It was found that about 70% of the respondents know about the classification of NPA
as standard assets, sub standard assets, doubtful assets and loss assets. About 30%
the respondents have no idea about the classification of NPA in terms of various
assets because they have no or less idea about knowledge related to NPAin context
of banks.

53
11. Reason for Assets Becoming NPA:
Table:
OPTIONS Managerial Lack of Lack of Lack of Lack of proper Total
deficiencies knowledge timely adequate verification of the
during work of the area actions efforts for genuine purpose of
of handling recovery loans and advances

RESPONSES 3 6 3 6 12 30

PERCENTAGE 10 20 10 20 40 100%

Table 15: Reason for Assets Becoming NPA Source: Questionnaire Responses
Chart:

Chart 11: Reason for Assets Becoming NPA Source: Questionnaire Responses

Interpretation:
It was found that about 40% of the respondents think that reason for assets becoming
NPA is due to lack of proper verification of the purpose of taking loans. 20% of the
respondents think that it is due to lack of knowledge about that area and other 20%
think that it is due to lack of efforts for recovery.

54
12. Similar Recovery Strategy or Not:
Table:
OPTIONS Yes No Total

RESPONSES 24 6 30

PERCENTAGE 80 20 100%

Table 16: Similar Recovery Strategy or Not Source: Questionnaire Responses

Chart:

Chart 12: Similar Recovery Strategy or Not Source: Questionnaire Responses

Interpretation:
It was found that about 80% of the respondents think that the recovery strategy of
NPA in all sectors and in all geographical regions of banks have same due to rules
and regulations of the setup by RBI and the guidelines are also given by the RBI.
Around 20% of them think that it is not so due to different strategy in all sectors.

55
13. Alternative Ways to Reduce NPA or Not:
Table:
OPTIONS Yes No Total

RESPONSES 21 9 30

PERCENTAGE 70 30 100%

Table 17: Alternative Ways to Reduce NPA or Not Source: Questionnaire Responses
Chart:

Chart 13: Alternative Ways to Reduce NPA or Not Source: Questionnaire Responses

Interpretation:
It was found that about 70% of the respondents think that there are many alternative
ways to reduce the NPA. The other ways can be opt by banks to reduce the NPA in
order to maintain the low NPA in banks. 30% of them think that there are no alternate
ways to reduce NPA other than that the guidelines by RBI.

56
14. Factors Contribute to NPA or Not:
Table:
OPTIONS Yes No Total

RESPONSES 24 6 30

PERCENTAGE 80 20 100%

Table 18: Factors Contribute to or Not Source: Questionnaire Responses

Chart:

Chart 14: Factors Contribute to NPA or Not Source: Questionnaire Responses

Interpretation:
It was found that about 80% of the respondents think that the various factors like
defective lending process, inappropriate technology, poor credit appraisal system
and managerial deficiencies are the reason for poor NPA and 20% them think that
it is not true in that case.

57
15. Strategy Helpful in Reducing NPA or Not:
Table:
OPTIONS Yes No Total

RESPONSES 21 9 30

PERCENTAGE 70 30 100%

Table 19: Strategy Helpful in Reducing NPA or Not Source: Questionnaire Responses
Chart:

Chart 15: Strategy Helpful in Reducing NPA or Not Source: Questionnaire Responses

Interpretation:
It was found that about 70% of the respondents think that the various strategy like
security of assets and legal recovery are the factors that help in improving NPA
and 30% them think that it is not true in that case. These strategies have only limited
affect on the factors related to NPA. Bank should focus on other strategies also rather
than that.

58
16. Method to Create Awareness About NPA:
Table:
OPTIONS Campaign Publishing Media Websites Total
Reports

RESPONSES 6 4 15 5 30

PERCENTAGE 20 13.3 50 16.7 100%

Table 20: Method to Create Awareness About NPA Source: Questionnaire Responses
Chart:

Chart 16: Method to Create Awareness About NPA Source: Questionnaire Responses

Interpretation:
It was found that about 50% of the respondents think that the best method to create
awareness about NPA is media. 20% of them think that it is campaigns that help.
Other 16.7% of them think that it is websites that help in creating awareness. 13.3%
of them think that publishing reports are helpful in it. The best method is media for
the awareness programme related to NPA.

59
17. Reducing Method Helped in Improving NPA or Not:
Table:
OPTIONS Yes No Total

RESPONSES 21 9 30

PERCENTAGE 70 30 100%

Table 21: Reducing Method Helped in Improving NPA or Not Source: Questionnaire
Responses
Chart:

Chart 18: Reducing Method Helped in Improving NPA or Not Source: Questionnaire
Responses

Interpretation:
It was found that about 70% of the respondents think that the reducing method
helped in improving NPA and 20% them think that it is not true in that case. These
methods helped in improving the NPA but up to a certain limit. There must have
been other factors that helped in improving NPA other than the reducing method so
we must follow on that factors also.

60
18. Banking Sector Worked Towards Improving NPA:
Table:
OPTIONS Private Sector Banks Public Sector Banks Total

RESPONSES 18 12 30

PERCENTAGE 60 40 100%

Table 22: Banking Sector Worked Towards Improving NPA Source: Questionnaire
Responses
Chart:

Chart 18: Banking Sector Worked Towards Improving NPA Source: Questionnaire
Responses

Interpretation:
It was found that about 60% of the respondents believe that private sector banks
helps in improving NPA more than private sector banks. 40% of them think that it
is public sector banks that help in do so rather than private sector banks. Private
sector banks have access to modern technology and efficient management.

61
19. Following RBI Guidelines for Improving NPA or Not:
Table:
OPTIONS Yes No Total

RESPONSES 21 9 30

PERCENTAGE 70 30 100%

Table 23: Following RBI Guidelines for Improving NPA or Not Source: Questionnaire
Responses
Chart:

Chart 19: Following RBI Guidelines for Improving NPA or Not Source: Questionnaire
Responses

Interpretation:
It was found that about 70% of the respondents think that there bank follow RBI
guidelines in context of improving NPA and 30% of them think that most of the
banks do not follow RBI guidelines in terms of improving NPA due to various
inefficient factors and also due to various different management policies.

62
 20. Performance Efficiency of Respondents Bank to Improve NPA:
Table:
OPTIONS 1 2 3 4 5 6 7 8 9 10 Total

RESPONSES 0 0 2 2 3 2 5 9 5 2 30

PERCENTAGE 0 0 6.7 6.7 10 6.6 16.7 30 16.7 6.6 100%

Table 24: Performance Efficiency of Respondents Bank to Improve NPA Source:

Questionnaire Responses
Chart:

Chart 20: Performance Efficiency of Respondents Bank to Improve NPA Source:

Questionnaire Responses

Interpretation:
It was found that about 30% of the respondents believe that their banks have
performance efficiency of 8 out of 10 in improving NPA. 23.4% of them think that
their banks have efficiency below 6 out of 10 and 6.7% of them have efficiency of
10 out of 10.

63
 RATIO ANALYSIS
1. Gross NPA Ratio:
Table:
Year GNPA GNPA
(Public Sector Banks) (Private Sector Banks)
2017-2018 14.6 4.7
2018-2019 11.6 5.3
2019-2020 10.3 5.5
2020-2021 9.1 4.9
2021-2022 7.3 3.9
Table 25: GNPA Ratio Source: https://www.rbi.org.in/
Chart:

GNPA RATIO
16
14.6
14
12 11.6
10 10.3
9.1
GNPA Ratio

8
7.3
6
5.3 5.5
4.7 4.9
4 3.9
2
0
2017-2018 2018-2019 2019-2020 2020-2021 2021-2022

GNPA (Public Sector Banks) GNPA (Private Sector Banks)

Chart 21: GNPA Ratio

Interpretation:
It was found that the GNPA of public sector bank is high in 2017-2018 as 14.6 and
it is lowest in 2021-2022 as 7.3. While comparing with GNPA of private sector it
is found that the GNPA of private sector is high in 2019-2020 as 5.5 and lowest in
2021-2022 as 3.9. It shows that the private banks are performing best.

64
2. Net NPA Ratio :
Table:
Year NNPA NNPA
(Public Sector Banks) (Private Sector Banks)
2017-2018 8.0 2.4
2018-2019 5.2 2.0
2019-2020 3.8 1.8
2020-2021 2.4 1.2
2021-2022 1.7 0.8
Table 26: NNPA Ratio Source: https://www.rbi.org.in/
Chart:

NNPA RATIO
9
8 8
7
6
NNPA Ratio

5 5.2
4 3.8
3
2.4 2.4
2 2 1.8 1.7
1 1.2
0.8
0
2017-2018 2018-2019 2019-2020 2020-2021 2021-2022

NNPA (Public Sector Banks) NNPA (Private Sector Banks)

Chart 22: NNPA Ratio

Interpretation:
It was found that the NNPA of public sector bank is high in 2017-2018 as 8.0 and
it is lowest in 2021-2022 as 1.7. While comparing with NNPA of private sector it
is found that the NNPA of private sector is also high in 2017-2018 as 2.4 and lowest
in 2021-2022 as 0.8. It shows that the private banks are performing best when
compared to public sector banks.

65
3. Provision Ratio:
Table:
Year Provision Ratio Provision Ratio
(Public Sector Banks) (Private Sector Banks)
2017-2018 55.2 75.8
2018-2019 60.5 78.3
2019-2020 66.6 80.2
2020-2021 78.4 86.7
2021-2022 89.9 90.1
Table 27: Provision Ratio Source: https://www.rbi.org.in/
Chart:

Provision Ratio of Private and Public Sector Banks

100
90 90.1
89.9
86.7
80 78.3 80.2 78.4
75.8
70
Provision Ratio

66.6
60 60.5
55.2
50
40
30
20
10
0
2017-2018 2018-2019 2019-2020 2020-2021 2021-2022

Provision Ratio (Public Sector Banks) Provision Ratio (Private Sector Banks)

Chart 23: Provision Ratio

Interpretation:
It was found that the provision ratio of public sector bank is high in 2021-2022 as
89.9 and it is lowest in 2017-2018 as 55.2. While comparing with provision ratio of
private sector it is found that the provision ratio of private sector is also high in 2021-
2022 as 90.1 and lowest in 2017-2018 as 75.8. It shows that the efficiency of public
sector banks are reducing day by day as compared to private sector banks.

66
4. Comparison of NNPA and GNPA of Public Sector Bank:
Table:
Year NNPA GNPA
(Public Sector Banks) (Public Sector Banks)
2017-2018 8.0 14.6
2018-2019 5.2 11.6
2019-2020 3.8 10.3
2020-2021 2.4 9.1
2021-2022 1.7 7.3
Table 28: Comparison of NNPA and GNPA of Public Sector Bank
Source: https://www.rbi.org.in/
Chart:

NNPA and GNPA of Public Sector Banks

16
14.6
14
12 11.6
10 10.3
NNPA and GNPA

9.1
8 8
7.3
6
5.2
4 3.8
2 2.4
1.7
0
2017-2018 2018-2019 2019-2020 2020-2021 2021-2022

NNPA (Public Sector Banks) GNPA (Public Sector Banks)

Chart 24: Comparison of NNPA and GNPA of Public Sector Bank

Interpretation:
It was found that the NNPA of public sector bank is high in 2017-2018 as 8.0 and
it is lowest in 2021-2022 as 1.7. While comparing with GNPA of public sector it is
found that the GNPA of public sector is also high in 2017-2018 as 14.6 and lowest
in 2021-2022 as 7.3. It shows that the efficiency of public sector banks are
increasing day by day which is good for them.

67
5. Comparison of NNPA and GNPA of Private Sector Bank:
Table:
Year NNPA GNPA
(Private Sector Banks) (Private Sector Banks)
2017-2018 2.4 4.7
2018-2019 2.0 5.3
2019-2020 1.8 5.5
2020-2021 1.2 4.9
2021-2022 0.8 3.9
Table 29: Comparison of NNPA and GNPA of Private Sector Bank
Source: https://www.rbi.org.in/
Chart:

Chart Title
6
5.3 5.5
5 4.9
4.7
4 3.9
NNPA and GNPA

3
2.4
2 2 1.8
1 1.2
0.8
0
2017-2018 2018-2019 2019-2020 2020-2021 2021-2022

NNPA (Private Sector Banks) GNPA (Private Sector Banks)

Chart 25: Comparison of NNPA and GNPA of Private Sector Bank

Interpretation:
It was found that the NNPA of private sector bank is high in 2017-2018 as 2.4 and
it is lowest in 2021-2022 as 0.8. While comparing with GNPA of private sector it
is found that the GNPA of private sector is high in 2019-2020 as 5.5 and also lowest
in 2021-2022 as 3.9. It shows that the efficiency of private sector banks are reducing
day by day which is not good for them but is also increasing recently.

68
 CHAPTER-4

RECOMMENDATIONS
AND CONCLUSIONS

69
 FINDINGS

➢ The percentage change in gross NPA to gross advances ratio & net NPA to net
advances ratio over the years is increasing day in and out.
➢ It states that Private sector banks makes more provisions in gross NPA & gross
advances as compared to Public Sector Banks.
➢ Public sector banks have managed to decrease the standard assets over the years
but the Private Sector Banks have an increase in their Standard Assets.
➢ The sub-standard assets of both the banks are decreasing.
➢ Doubtful assets of Public Banks are increasing but they are constant with Private
Sector Banks.
➢ Loss assets of both banks are showing decreasing trend.
➢ There is a positive relation between NPA & profits of private sector banks which
is due to wrong choice of clients by Banks.

70
➢ There is an adverse effect on the Liquidity of Banks.
➢ Banks are backing out to give loans to the new customers due to lack of funds which
arises due to NPA.
➢ Ineffective recovery, wilful defaults and Defective lending process are the important
factors which are responsible for the rise of NPAs in banks.
➢ NPAs reduce the earning capacity banks and badly affect the profitability of banks.
➢ The National Company Law Tribunal (NCLT) has adjudicated insolvency
resolution for companies. The Debt Recovery Tribunal (DRT) has adjudicated
insolvency resolution for individuals.
➢ The old private sector banks, which had been registering a significantly lower
growth rate than their newer counterparts in the recent past, managed a better
performance this year.
➢ NPAs were more noticeable in respect of new private sector and foreign banks,
which have been more active in the real estate and housing loans segments. It shows
a upward trends over the years as compared to others.
➢ Net NPA against net advances increased more in Private sector banks in while
Public sector banks have succeeded in reducing net NPA against net advances made
over the period of time.
➢ Public sector banks almost 75% of income comes from Interest/Discount on
advances/bill. Whereas it is just 55% for private sector banks.
➢ In questionnaire survey, most believe that banks do not pay attention towards proper
verification of the customer before giving them loan.
➢ Around 30% of respondents believe that few banks do not follow the guidelines of
RBI in a proper way.
➢ 60% of respondents believe that due to increasing competition now private sector
banks are focusing more in reducing their NPA as compared to public sector banks.

71
 RECOMMENDATIONS

After all these points, I just want to say that NPA is a big problem of banks. Due to this
crisis the NPA are also increased. That’s why all the banks are facing problems and these
banks have to take care of this problem as it may affect their reputation. My
recommendations are:
✓ Strengthening provision norms and loan classification standards based on forward
looking criteria (like future cash flows) were implemented.
✓ Through securitization they can reduce NPA
✓ Speed of action- the speedy containment of systematic risk and the domestic credit
crunch problem with the injection of large public fund for bank recapitalization are
critical steps towards normalizing the financial system.
✓ Strengthening legal system

72
✓ Maintain required capital adequacy ratio as per Basel 2 norms. That means now the
provision for NPL will be more. This may look a conservative approach. But it
should be implemented to reduce risk.
✓ Modification in accounting system
✓ Use the concept of credit derivative
✓ Aligning of prudential norms with international standard.
✓ New body like Debt Recovery Tribunal should be established & capacity of DRTs
should be enhanced.
✓ All banks should keep stringent check on advances being made during the time.
✓ Public sector should focus more on recovery of doubtful assets.
✓ Private sector banks should increase their income from sources other than interest,
as rise in NPA due to default in interest income may affect the profits drastically.
✓ RBI should revise existing credit appraisals and monitoring systems.
✓ Banks should improve upon and strengthen their loan recovery methods.
✓ Credit appraisal and post–loan monitoring are crucial steps which need to be
concentrated by all the banks.
✓ There must be regular follow-up with the customers and it is the duty of banker to
ensure that there is no diversion of funds. This process can be taken up at regular
intervals.
✓ Personal visits should be made after sanction and disbursal of credit and further
close monitoring of the operations of the accounts of borrowed units should be done
periodically.
✓ Advances provided by banks need pre-sanctioning evaluation and post-
disbursement control so that NPA can decrease.
✓ Good management needed on the side of banks to decrease the level of NPA.
✓ Proper selection of borrowers & follow ups required to get timely payment.

73
 CONCLUSION
The NPA is one of the biggest problems that the Indian Banks are facing today. If the proper
management of the NPAs is not undertaken it would hamper the business of the banks. If the
concept of NPAs is taken very lightly it would be dangerous for the Indian banking sector. The
NPAs would destroy the current profit, interest income due to large provisions of the NPAs, and
would affect the smooth functioning of the recycling of the funds Banks also redistribute losses
to other borrowers by charging higher interest rates. Lower deposit rates and higher lending rates
repress savings and financial markets, which hampers economic growth.

Public sector banks are more efficient than private sector with regard to the management of
nonperforming assets. Even among private sector bank, old private sector banks are more efficient
than new private sector banks. But efficient management of NPA is not the sole factor that
determines the overall efficiency of banks The Non-Performing Assets have always createda big
problem for the banks in India. It is just not only problem for the banks but for theeconomy
too.

The money locked up in NPAs has a direct impact on profitability of the bank as Indian banks
are highly dependent on income from interest on funds lent. This study shows that extent of NPA
is comparatively very high in public sectors banks. Although various steps have been taken by
government to reduce the NPAs like S4A (Scheme for Sustainable Structuring of StressedAssets)
and Indradhanush Scheme but still a lot needs to be done to curb this problem. The NPAs level
of our banks is still high. It is not at all possible to have zero NPAs.

The bank management should speed up the recovery process. The problem of recovery is not with
small borrowers but with large borrowers and a strict policy should be followed for solving this
problem. The government should also make more provisions for faster settlement of pendingcases
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.

74
 BIBLIOGRAPHY

MAGAZINES
1) India today
2) Business world

NEWSPAPERS
1) Times of India
2) The Hindustan times
3) The economic times.

JOURNALS
Kanika Goyal, “Empirical Study of Non-Performing Assets Management of Indian
Public Sector Banks”, APJRBM Volume 1, Issue 1, October 2010.
Prasad and Veena, “NPAs Reduction Strategies for Commercial Banks in India”.
International Journal of Management and Business Studies. Vol.1 Issue 3, pp. 49-53,2011
Price water house Coopers, “Management of nonperforming assets by Indian banks”,
IBA Bulletin, Jan. 2004.

75
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❖ https://corporatefinanceinstitute.com/resources/accounting/non-
performing-asset/

76
 ANNEXURES
LIST OF FIGURES
FIGURES FIGURE NAME PAGE
NO.
FIGURE 1 Awareness Regarding NPA 44
FIGURE 2 Definition of NPA 45
FIGURE 3 Functioning of Branch 46
FIGURE 4 Presence of NPA in Respondents Branch 47
FIGURE 5 % of NPA in Respondents Branch 48
FIGURE 6 Category in Which NPA is Observed 49
FIGURE 7 Knowledge about NPA’s Impact on Economy 50
FIGURE 8 Trend of NPA in Respondents Bank 51
FIGURE 9 NPA Asset Changed From 180 to 90 Days 52
FIGURE 10 Classification of NPA Assets 53
FIGURE 11 Reason for Assets Becoming NPA 54
FIGURE 12 Similar Recovery Strategy or Not 55
FIGURE 13 Alternative Ways to Reduce NPA or Not 56
FIGURE 14 Factors Contribute to or Not 57
FIGURE 15 Strategy Helpful in Reducing NPA or Not 58
FIGURE 16 Method to Create Awareness About NPA 59
FIGURE 17 Reducing Method Helped in Improving NPA or Not 60
FIGURE 18 Banking Sector Worked Towards Improving NPA 61
FIGURE 19 Following RBI Guidelines for Improving NPA or Not 62
FIGURE 20 Performance Efficiency of Respondents Bank to Improve NPA 63
FIGURE 21 GNPA Ratio 64
FIGURE 22 NNPA Ratio 65
FIGURE 23 Provision Ratio 66
FIGURE 24 Comparison of NNPA and GNPA of Public Sector Bank 67
FIGURE 25 Comparison of NNPA and GNPA of Private Sector Bank 68

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 LIST OF TABLES
TABLE TABLE NAME PAGE NO.
TABLE 1 NPA phases 4
TABLE 2 List of Nationalized Banks 35
TABLE 3 List of State Bank of India & its Associates 35
TABLE 4 List of Private Sector Banks 37-38
TABLE 5 Awareness Regarding NPA 44
TABLE 6 Definition of NPA 45
TABLE 7 Functioning of Branch 46
TABLE 8 Presence of NPA in Respondents Branch 47
TABLE 9 % of NPA in Respondents Branch 48
TABLE 10 Category in Which NPA is Observed 49
TABLE 11 Knowledge about NPA’s Impact on Economy 50
TABLE 12 Trend of NPA in Respondents Bank 51
TABLE 13 NPA Asset Changed From 180 to 90 Days 52
TABLE 14 Classification of NPA Assets 53
TABLE 15 Reason for Assets Becoming NPA 54
TABLE 16 Similar Recovery Strategy or Not 55
TABLE 17 Alternative Ways to Reduce NPA or Not 56
TABLE 18 Factors Contribute to or Not 57
TABLE 19 Strategy Helpful in Reducing NPA or Not 58
TABLE 20 Method to Create Awareness About NPA 59
TABLE 21 Reducing Method Helped in Improving NPA or Not 60
TABLE 22 Banking Sector Worked Towards Improving NPA 61
TABLE 23 Following RBI Guidelines for Improving NPA or Not 62
TABLE 24 Performance Efficiency of Respondents Bank to Improve NPA 63
TABLE 25 GNPA Ratio 64
TABLE 26 NNPA Ratio 65
TABLE 27 Provision Ratio 66
TABLE 28 Comparison of NNPA and GNPA of Public Sector Bank 67
TABLE 29 Comparison of NNPA and GNPA of Private Sector Bank 68

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 QUESTIONNAIRE

Comparative Analysis of NPA of Private and Public Sector Banks

I am a final year student currently pursuing my MBA(BFM) from Narsee Monjee Institute of
Management Studies (Ngasce). I am conducting a research study on “Comparative Analysis of
NPA of Private and Public Sector Banks”. This research (project) is taken as a partial
requirement for the completion of my MBA. I seek your kind assistance in completing the attached
questionnaire which would take few minutes from your valuable time. Your responses will be
treated as Strictly Confidential.

PERSONAL INFORMATION:

1. NAME ………………………………………

2. Gender

a) Male b) Female

3. Age
i) 20-30 ii) 31-40 iii) 41-50 iv) Above 50
4. Graduation
i) Undergraduate ii) Graduate iii) Post Graduate

THE QUESTIONS ARE GIVEN BELOW:-

Q-1) Are you aware of NPA in context of banks?
A) Yes
B) No
Q-2) If yes, according to you what is NPA?
A) When an assets ceases to generate income from the bank.
B) If the customers do not pay principal and interest for a certain period of
time.
C) If periodical income is generated for lender of money.
Q-3) Since how long the branch is functioning?
A) 0-2 years
B) 3-5 years
C) 6-10 years

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 D) Above 10 years
Q-4) Since how long the presence of NPA is observed in your branch?
A) 0-2 years
B) 3-5 years
C) 6-10 years
D) Above 10 years
Q-5) What is the percentage of NPA in your branch?
A) 1-4%
B) 4-7%
C) 7-10%
D) Above 10%
Q-6) For which category NPA is observed?
A) Personal Loan
B) Vehicle Loan
C) Housing Loan
D) Agriculture Loan
Q-7) How did you know about NPA's impact on Indian economy?
A) Through bank employees
B) Through the RBI website
C) Through journals, magazines and articles
D) Other
Q-8) What is trend of NPA in your bank ?
A) Highly Decreasing
B) Slowly Decresing
C) Constant
D) Slowly Increasing
E) Highly Increasing
Q-9) Previously an asset be called NPA after 180 days, but now it is being changed
to 90 days in Indian context .Do you agree with it ?
A) Yes
B) No
Q-10) Does NPA classified as:- Standard asset, Sub standard asset, Doubtful asset
and Loss asset
A) Yes
B) No
Q-11) What are the reasons for assets becoming non performing asset ?
A) Managerial deficiencies during work
B) Lack of knowledge of the area of handling
C) Lack of timely actions
D) Lack of adequate efforts for recovery

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 E) Lack of proper verification of the genuine purpose of loans and advances
Q-12) Do banks have similar recovery strategy in all sectors and in all
geographical regions?
A) Yes
B) No
Q-13) Do you think there are the alternative ways to reduce the NPA ?
A) Yes
B) No
Q-14) Do you think these factors contribute to NPA ?
1. Defective Lending process
2. Inappropriate technology
3. Poor credit appraisal system
4. Managerial deficiencies.
A) Yes
B) No
Q-15) Do you think any one the strategy mentioned is helpful to reducing NPA ?
Security of asset (Debt) and Legal recovery.
A) Yes
B) No
Q-16) Which is the most preferred method to create awareness about NPA?
A) Campaign
B) Publishing Reports
C) Media
D) Websites
Q-17) Does the reducing method technique helped in improving the NPA?
A) Yes
B) No
Q-18) Which sector of bank has worked towards improving its NPA more?
A) Private Sector Banks
B) Public Sector Banks
Q-19) Does your bank follow RBI guidelines in context of improving its NPA?
A) Yes
B) No
Q-20) Rate the performance efficiency of your bank to improve its NPA?

Least Effective Highly Effective

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