UNIVERSITY OF MUMBAI

Sterling College of Arts, Commerce and Science

Plot no-43,walse S.G patil marg,Nerul, navimumbai
College code-0552
Project report on
A STUDY OF NON PERFORMING ASSETS OF PUBLIC
SECTOR AND PRIVATE SECTOR BANKS
By
ATIK ILYAS HAMDULAY
SEAT NO-8089204
UNDER THE GUIDANCE OF

CA.KISHOR ARJAN BHADRA

IN PARTIAL FULFILLMENT FOR THE COURSE OF

BACHELOR OF COMMERCE(ACCOUNTING&FINANCE)

SEMESTER-VI

ACADEMIC YEAR 2024-25

 DECLARATION BY LEARNER
I the undersigned MR.ATIK ILYAS HAMDULAY here by, declare that the word embodied
in this project work titled “A STUDY OF NON PERFORMING ASSETS OF PUBLIC
SECTOR AND PRIVATE SECTOR BANKS” forms my own contribution to the research
work carried out under the guidance of CA.KISHOR ARJAN BHADRA is a result of my
own research work and has not been previously submitted to any other university for any
other degree to this or any other university

Whenever reference has been made to previous works of others it has been clearly indicated
as such and included in bibliography

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

Date :________ _________________

Place:Navimumbai Atik Ilyas Hamdulay

 National Centre for Rural Development’s
Sterling College of Arts, Commerce & Science
(NAAC Accredited)
(Affiliated to University of Mumbai)
Plot No. 43, Sector 19, Nerul (East), Navi Mumbai – 400706
Tel. No. : +91-22-2770 5535. Fax: +91-22-2770 8059
Email – [email protected] Website - https://www.sterlingcollegeofcommerce.com

CERTIFICATE

This is to certify that MR ATIK ILYAS HAMDULAY of Bachelor of

Commerce(Accounting and Finance) has undertaken and completed the project work titled
“A STUDY OF NON PERFORMING ASSETS OF PUBLIC SECTOR AND PRIVATE
SECTOR BANKS” during the academic year 2024-25 under the guidance of CA. KISHOR
ARJAN BHADRA submitted on ____________ to this college in fulfillment of the
curriculum of Bachelor of Commerce(Accounting and Finance) (SEM-VI) University of
Mumbai.

This is a bonafide project work and the information presented is true and original to the best
of our knowledge and belief.

PROJECT GUIDE COURSE CO-ORDINATOR

(CA,KISHOR ARJAN BHADRA) (CA.KISHOR ARJAN BHADRA)

PRINCIPAL EXTERNAL GUIDE

(DR.K.RAVIVARMA) (________________________)
 ACKNOWLEDGEMENT
To the list who have helped me in difficulties they are so numerous and the depth is so enormous

I would like to acknowledge the following as being idealistic channels and fresh dimensions in the
completion of this project

I take this opportunity to thank University of Mumbai for giving me chance to do this project

I would like to thank my principal Dr Ravivarma for providing the necessary facilities required for
completion of this project

I take this opportunity to thank our co-ordinator CA.Kishor Arjan Bhadra for his moral support and
guidance

I would also like to express my sincere gratitude towards my project guide CA.Kishor Arjan Bhadra

Whose guidance and care made the project successful

I would like to thank my college library for having provided various reference books and magazines
related to my project

Lastly I would like to thank each and every person who directly or indirectly helped me in this project
especially my parents and peers.
 EXECUTIVE SUMMARY
Banking sectors is exposed to number of risk like market risk, interest rate risk, liquidity risk,
borrower‟s risk, and among these many risk the bank face one of the most critical is the
borrowers risk – the risk of non payment of the disbursed loans and advances. As big chunk
of deposits fund is invested in the form of loans and advances. Hence, parameters for
evaluating the performance of banks have also changed. This study provides an empirical
approach to the analysis of profitability indicators with a focal point on non-performing
assets (NPAs) of public and private sector banks. NPAs reflect the performance of banks. The
earning capacity and profitability of the banks are highly affected because of the existence of
NPAs .A high level of NPAs suggests that large number of credit defaults that affect the
profitability and net-worth of banks. Private and public Sector banks are highly affected by
this three letter virus NPA. In this study an effort has been made to evaluate the operational
performance of the selected PSBs & Private bank in India and also analyse how efficiently
Public and Private sector banks can managing NPA.

Non performing assets are one of the major concerns for banks in India. NPAs reveal the
performance of banks. It affects the liquidity and profitability of banks. Growing non
performing assets is a recurrent problem in the Indian banking sector. The NPAs growth has a
direct impact on profitability of banks. It involves the necessity of provisions, which reduces
the overall profits and shareholders‟ value. The problem of NPAs is not only affecting the
banks but also the whole economy. In this article, a comparative study has been made
between NPA of public sector banks and private sector banks in India for 5 years. The
factors contributing to NPAs, reasons for high NPAs and their impact on Indian banking
operations, the trend and magnitude of NPAs in Indian banks. The recovery of NPAs in both
public and private sector banks has been analysed.

The major concern for banks in India is Non-performing assets. Performance of the banks is
reflected through NPA. Larger NPA reflects credit non-payments that affect the profitability
and net worth of banks which erodes the value of the asset. Liquidity and profitability of the
banks is affected by high level of NPAs which additional affects the quality and survival of
banks. Serious problem has been faced by banking sector of India due to high and large
NPAs. Profitability of any bank is directly impact by NPAs. Profit and shareholders value is
reduced because NPAs involve necessary provision. Whole Indian economy is affected by
the problem of NPAs. NPAs are the reflection of health and trade of Indian banking sector.
 INDEX

CHAPTER Description Page no

NO
1 Introduction 7-27

2 Literature review 28-32

3 Research methodology 33-35
4 Data analysis and Interpretation 36-53
5 Findings 54-57
6 Conclusion 58-59
Bibliography 60
 CHAPTER 1-
INTRODUCTION
CHAPTER: 1 INTRODUCTION
1.1 Banking industry in India
Modern banking in India originated in the mid of 18th century. Among the first banks were the Bank
of Hindustan, which was established in 1770 and liquidated in 1829–32; and the General Bank of
India, established in 1786 but failed in 1791.

The largest and the oldest bank which is still in existence is the State Bank of India (SBI). It
originated and started working as the Bank of Calcutta in mid-June 1806. In 1809, it was renamed as
the Bank of Bengal. This was one of the three banks founded by a presidency government, the other
two were the Bank of Bombay in 1840 and the Bank of Madras in 1843. The three banks were merged
in 1921 to form the Imperial Bank of India, which upon India's independence, became the State Bank
of India in 1955. For many years, the presidency banks had acted as quasi-central banks, as did their
successors, until the Reserve Bank of India was established in 1935, under the Reserve Bank of India
Act, 1934.

In 1960, the State Banks of India was given control of eight state-associated banks under the State
Bank of India (Subsidiary Banks) Act, 1959. However the merger of these associated banks with SBI
went into effect on 1 April 2017. In 1969, the Government of India nationalised 14 major private
banks; one of the big banks was Bank of India. In 1980, 6 more private banks were nationalised.These
nationalised banks are the majority of lenders in the Indian economy. They dominate the banking
sector because of their large size and widespread networks.

The Indian banking sector is broadly classified into scheduled and non-scheduled banks. The
scheduled banks are those included under the 2nd Schedule of the Reserve Bank of India Act, 1934.
The scheduled banks are further classified into: nationalised banks; State Bank of India and its
associates; Regional Rural Banks (RRBs); foreign banks; and other Indian private sector banks. The
SBI has merged its Associate banks into itself to create the largest Bank in India on 1 April 2017.
With this merger SBI has a global ranking of 236 on Fortune 500 index. The term commercial banks
refers to both scheduled and non-scheduled commercial banks regulated under the Banking
Regulation Act, 1949.

Generally the supply, product range and reach of banking in India is fairly mature-even though reach
in rural India and to the poor still remains a challenge. The government has developed initiatives to
address this through the State Bank of India expanding its branch network and through the National
Bank for Agriculture and Rural Development (NABARD) with facilities like microfinance.
According to the Reserve Bank of India (RBI), there are over 24.23 million fixed deposits in India,
with a total of over ₹103 trillion (US$1.2 trillion) currently locked in these deposits. This figure
surpasses the ₹18.5 trillion (US$210 billion) held in current accounts and ₹59.70 trillion (US$690
billion) in savings accounts, which together come to ₹181 trillion (US$2.1 trillion). The majority of
research studies state that Indians have historically preferred bank deposits over other investing
options because of safety and security. Over 95% of Indian consumers prefer to keep their money in
bank accounts, while less than 10% choose to invest in equities or mutual funds, according to a SEBI
survey. As per the Reserve Bank of India (RBI), a significant portion of Indian household financial
assets are held in the form of bank deposits. This is consistent with the traditional preference of Indian
households for safe and liquid assets.

1.2 History of banks in India

Ancient India
The Vedas, ancient Indian texts, mention the concept of usury, with the word kusidin translated as
"usurer". The Sutras (700–100 BCE) and the Jatakas (600–400 BCE) also mention usury. Texts of this
period also condemned usury: Vasishtha forbade Brahmin and Kshatriya varnas from participating in
usury. By the 2nd century CE, usury became more acceptable. The Manusmriti considered usury an
acceptable means of acquiring wealth or leading a livelihood. It also considered money lending above
a certain rate and different ceiling rates for different castes a grave sin.

The Jatakas, Dharmashastras and Kautilya also mention the existence of loan deeds, called rnapatra,
rnapanna, or rnalekhaya.

Later during the Mauryan period (321–185 BCE), an instrument called adesha was in use, which was
an order on a banker directing him to pay the sum on the note to a third person, which corresponds to
the definition of a modern bill of exchange. The considerable use of these instruments has been
recorded[citation needed]. In large towns, merchants also gave letters of credit to one another.[26]

Medieval period
The use of loan deeds continued into the Mughal era and were called dastawez (in Urdu/Hindi). Two
types of loans deeds have been recorded. The dastawez-e-indultalab was payable on demand and
dastawez-e-miadi was payable after a stipulated time. The use of payment directives by royal
treasuries, called barattes, have been also recorded. There are also records of Indian bankers using
issuing bills of exchange on foreign countries. The evolution of hundis, a type of credit instrument,
also occurred during this period and remain in use.
Colonial era
During the period of British rule merchants established the Union Bank of Calcutta in 1829,first as a
private joint stock association, then partnership. Its proprietors were the owners of the earlier
Commercial Bank and the Calcutta Bank, who by mutual consent created Union Bank to replace these
two banks. In 1840 it established an agency at Singapore, and closed the one at Mirzapore that it had
opened in the previous year. Also in 1840 the Bank revealed that it had been the subject of a fraud by
the bank's accountant. Union Bank was incorporated in 1845 but failed in 1848, having been insolvent
for some time and having used new money from depositors to pay its dividends.

The Allahabad Bank, established in 1865 and still functioning today, is the oldest Joint Stock bank in
India, it was not the first though. That honour belongs to the Bank of Upper India, which was
established in 1863 and survived until 1913, when it failed, with some of its assets and liabilities
being transferred to the Alliance Bank of Simla.

Foreign banks too started to appear, particularly in Calcutta, in the 1860s. Grindlays Bank opened its
first branch in Calcutta in 1864. The Comptoir d'Escompte de Paris opened a branch in Calcutta in
1860, and another in Bombay in 1862; branches followed in Madras and Pondicherry, then a French
possession. HSBC established itself in Bengal in 1869. Calcutta was the most active trading port in
India, mainly due to the trade of the British Empire, and so became a banking centre.

The first entirely Indian joint stock bank was the Oudh Commercial Bank, established in 1881 in
Faizabad. It failed in 1958. The next was the Punjab National Bank, established in Lahore in 1894,
which has survived to the present and is now one of the largest banks in India.

Around the turn of the 20th century, the Indian economy was passing through a relative period of
stability. Around five decades had elapsed since the Indian rebellion, and the social, industrial and
other infrastructure had improved. Indians had established small banks, most of which served
particular ethnic and religious communities.

The presidency banks dominated banking in India but there were also some exchange banks and a
number of Indian joint stock banks. All these banks operated in different segments of the economy.
The exchange banks, mostly owned by Europeans, concentrated on financing foreign trade. Indian
joint stock banks were generally under capitalised and lacked the experience and maturity to compete
with the presidency and exchange banks. This segmentation let Lord Curzon to observe, "In respect of
banking it seems we are behind the times. We are like some old fashioned sailing ship, divided by
solid wooden bulkheads into separate and cumbersome compartments."[citation needed]

The period between 1906 and 1911 saw the establishment of banks inspired by the Swadeshi
movement. The Swadeshi movement inspired local businessmen and political figures to found banks
of and for the Indian community. A number of banks established then have survived to the present
such as Catholic Syrian Bank, The South Indian Bank, Bank of India, Corporation Bank, Indian Bank,
Bank of Baroda, Canara Bank and Central Bank of India.
The fervour of Swadeshi movement led to the establishment of many private banks in Dakshina
Kannada and Udupi district, which were unified earlier and known by the name South Canara (South
Kanara) district. Four nationalised banks started in this district and also a leading private sector bank.
Hence undivided Dakshina Kannada district is known as "Cradle of Indian Banking".[citation needed]

The inaugural officeholder was the Britisher Sir Osborne Smith(1 April 1935), while C. D.
Deshmukh(11 August 1943) was the first Indian governor. On 12 December 2018, Shaktikanta Das,
who was the finance secretary with the Government of India, begins his journey as the new RBI
Governor, taking charge from Urjit R Patel.

During the First World War (1914–1918) through the end of the Second World War (1939–1945), and
two years thereafter until the independence of India were challenging for Indian banking. The years of
the First World War were turbulent, and it took its toll with banks simply collapsing despite the Indian
economy gaining indirect boost due to war-related economic activities. At least 94 banks in India
failed between 1913 and 1918 as indicated in the following table:

Years that failed Number of banks Authorised capital Paidup capital

(in lakhs)
1913 12 274 35
1914 42 710 109
1915 11 56 5
1916 13 231 4
1917 9 76 25
1918 7 209 1

Post-Independence
During 1938–46, bank branch offices trebled to 3,469 and deposits quadrupled to ₹ 962 crore.
Nevertheless, the partition of India in 1947 adversely impacted the economies of Punjab and West
Bengal, paralysing banking activities for months. India's independence marked the end of a regime of
the Laissez-faire for the Indian banking. The Government of India initiated measures to play an active
role in the economic life of the nation, and the Industrial Policy Resolution adopted by the
government in 1948 envisaged a mixed economy. This resulted in greater involvement of the state in
different segments of the economy including banking and finance. The major steps to regulate
banking included:
The Reserve Bank of India, India's central banking authority, was established in April 1935, but was
nationalized on 1 January 1949 under the terms of the Reserve Bank of India (Transfer to Public
Ownership) Act, 1948 (RBI, 2005b).

In 1949, the Banking Regulation Act was enacted, which empowered the Reserve Bank of India (RBI)
to regulate, control, and inspect the banks in India.

The Banking Regulation Act also provided that no new bank or branch of an existing bank could be
opened without a license from the RBI, and no two banks could have common directors.

Nationalisation in 1969
Despite the provisions, control and regulations of the Reserve Bank of India, banks in India except the
State Bank of India (SBI), remain owned and operated by private persons. By the 1960s, the Indian
banking industry had become an important tool to facilitate the development of the Indian economy.
At the same time, it had emerged as a large employer, and a debate had ensued about the
nationalization of the banking industry. Indira Gandhi, the then Prime Minister of India, expressed the
intention of the Government of India in the annual conference of the All India Congress Meeting in a
paper entitled Stray thoughts on Bank Nationalization.

Thereafter, the Government of India issued the Banking Companies (Acquisition and Transfer of
Undertakings) Ordinance, 1969 and nationalized the 14 largest commercial banks with effect from the
midnight of 19 July 1969 each with reserves of more than Rs.50 crore. These banks contained 85
percent of bank deposits in the country. Within two weeks of the issue of the ordinance, the
Parliament passed the Banking Companies (Acquisition and Transfer of Undertaking) Bill, and it
received presidential approval on 9 August 1969.

The following banks were nationalized in 1969:

1)Allahabad Bank (now Indian Bank)

2) Bank of Baroda

3)Bank of India

4)Central Bank of India

5)Canara Bank

6)Dena Bank (now Bank of Baroda)

7)Indian Bank

8)Indian Overseas Bank

9)Punjab National Bank

10)Syndicate Bank (now Canara Bank)

11)UCO Bank

12)Union Bank of India

13)United Bank of India (now Punjab National Bank)

Nationalisation in 1980
Specific banking frameworks

1)Market risk

2)FRTB

3)Internal models approach (IMA)

4)Standardized approach (market risk)

5)Credit risk

6)Internal ratings-based approach (IRB)

7)Foundation IRB (F-IRB)

8)Advanced IRB (A-IRB)

9)Standardized approach (credit risk)

10)Counterparty credit risk

11)Current exposure method (CEM)

12)Standardised method (SM)

13)Standardized approach (counterparty credit risk) (SA-CCR)

14)Operational risk

15)Advanced measurement approach (AMA)

16)Basic indicator approach

17)Standardized approach (operational risk)

18)Standardised measurement approach (SMA)

A second round of nationalizations of six more commercial banks followed in 1980. The stated reason
for the nationalization was to give the government more control of credit delivery. With the second
round of nationalizations, the Government of India controlled around 91% of the banking business of
India.

The following banks were nationalized in 1980:

Punjab and Sind Bank

Vijaya Bank (Now Bank of Baroda)

Oriental Bank of Commerce (now Punjab National Bank)

Corporation Bank (now Union Bank of India)

Andhra Bank (now Union Bank of India)

New Bank of India (now Punjab National Bank)

Later on, in the year 1993, the government merged New Bank of India with Punjab National Bank. It
was, at that time, the only merger between nationalised banks and resulted in the reduction of their
number from 20 to 19. Until the 1990s, the nationalized banks grew at a pace of around 4%, closer to
the average growth rate of the Indian economy.

Liberalisation in the 1990s

In the early 1990s, the then government embarked on a policy of liberalisation, licensing a small
number of private banks. These came to be known as New Generation tech-savvy banks, and included
Global Trust Bank (the first of such new generation banks to be set up), which later amalgamated with
Oriental Bank of Commerce, IndusInd Bank, UTI Bank (since renamed Axis Bank), ICICI Bank and
HDFC Bank. This move – along with the rapid growth in the economy of India – revitalised the
banking sector in India, which has seen rapid growth with strong contribution from all the three
sectors of banks, namely, government banks, private banks and foreign banks.

The next stage for the Indian banking has been set up, with proposed relaxation of norms for foreign
direct investment. All foreign investors in banks may be given voting rights that could exceed the
present cap of 10% at present. In 2019, Bandhan bank specifically, increased the foreign investment
percentage limit to 49%.It has gone up to 74% with some restrictions.
The new policy shook the banking sector in India completely. Bankers, till this time, were used to the
4–6–4 method (borrow at 4%; lend at 6%; go home at 4) of functioning. The new wave ushered in a
modern outlook and tech-savvy methods of working for traditional banks. All this led to the retail
boom in India. People demanded more from their banks and received more.

PSB amalgamations in the 2000s and 2010s

SBI

SBI merged with its associate bank State Bank of Saurashtra in 2008 and State Bank of Indore in
2010.

Following a merger process,the merger of the 5 remaining associate banks, (viz. State Bank of
Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala, State
Bank of Travancore); and the Bharatiya Mahila Bank) with the SBI was given an in-principle
approval by the Union Cabinet on 15 June 2016. This came a month after the SBI board had, on 17
May 2016, cleared a proposal to merge its five associate banks and Bharatiya Mahila Bank with itself.

On 15 February 2017, the Union Cabinet approved the merger of five associate banks with SBI.An
analyst foresaw an initial negative impact as a result of different pension liability provisions and
accounting policies for bad loans. The merger went into effect from 1 April 2017.

INTRODUCTION TO NON PERFORMING ASSETS OF

BANKS

NPA expands to non-performing assets (NPA). Reserve Bank of India defines Non Performing
Assets in India as any advance or loan that is overdue for more than 90 days.

“An asset becomes non-performing when it ceases to generate income for the bank,” said RBI in a
circular form 2007.

To be more attuned to international practises, RBI implemented the 90 days overdue norm for
identifying NPAs has been made applicable from the year ended March 31, 2004. Depending on how
long the assets have been an NPA, there are different types of non-performing assets as well.
1.3What is an Asset and Nonperforming Assets for a Bank?

Asset means anything that is owned. For banks, a loan is an asset because the interest we pay on these
loans is one of the most significant sources of income for the bank. In banking, an asset is anything of
value or a resource that the bank owns, which can generate income or be converted into cash. These
assets can include loans made to customers, securities, real estate, and cash reserves. The primary goal
of a bank is to earn revenue by lending money, investing in securities, and providing financial
services.

A Nonperforming Asset (NPA), on the other hand, refers to a loan or advance for which the borrower
has failed to make the required payments (interest or principal) for a certain period. For a bank, this
period is usually 90 days or more. When an asset becomes nonperforming, it means the bank is no
longer earning income from it, and the risk of default has increased. NPAs are classified based on the
duration of non-payment:

Substandard: NPAs that are overdue for less than 12 months.

Doubtful: NPAs that are overdue for more than 12 months.

Loss: Assets that are considered uncollectible or of no value.

NPAs are a major concern for banks because they affect the financial health of the institution. A high
level of NPAs can lead to a reduction in profits, a decrease in the bank‟s capital, and a potential risk to
its solvency.

To manage NPAs, banks may engage in restructuring loans, write-offs, or take legal action to recover
the amount.

When customers, retail or corporates, are not able to pay the interest, the asset becomes „non-
performing‟ for the bank because it is not earning anything for the bank. Therefore, RBI has defined
NPAs as assets that stop generating income for them.

How Nonperforming Assets (NPA) Work?

Non-Performing Assets (NPAs) are loans or advances issued by banks or financial institutions that no
longer bring in money for the lender since the borrower has failed to make payments on the principal
and interest of the loan for at least 90 days.

A debt that has been past due and unpaid for a predetermined period is known as a non-performing
asset (NPA).
When the ratio of NPAs in a bank's loan portfolio rises, its income and profitability fall, its capacity to
lend falls, and the possibility of loan defaults and write-offs rise.

To address this issue, the government and the Reserve Bank of India have introduced various policies
and methods to manage and reduce the amount of non-performing assets (NPAs) in the banking sector

The banking industry has undergone a sea change after the first phase of economic liberalization in
1991 and hence credit management. Asset quality was not prime concern in Indian banking sector till
1991, but was mainly focused on performance objectives such as opening wide networks/branches,
development of rural areas, priority sector lending, higher employment generation, etc. While the
primary function of banks is to lend funds as loans to various sectors such as agriculture, industry,
personal loans, housing loans etc., but in recent times the banks have become very cautious in
extending loans. The reason being mounting nonperforming assets (NPAs) and nowadays these are
one of the major concerns for banks in India. NPA (non-performing assets) is related to banking and
finance term. When bank or finance company is unable to recover its lent money from borrower in 90
days than that amount which have not been recovered will be treated as NPA.

Indian Banking System consists of Commercial Banks (Public and Private

Sector Banks, Foreign Banks), Regional Rural Banks(RRBs), Co-operative Banks, Payment Banks
etc. With the nationalization of 14 banks in 1969 and 6 banks in 1980, the Indian Economy entered
into top ten economies of the world. Non-Performing Assets(NPAs) or bad loans are thoase assets of
any bank which do not perform. If the borrowers don‟t pay either principal/part of principal or interest
or both, then the loan turns into a bad loan. NPAs according to RBI are those loans, on which interest
or principal remains overdue for a period of more than 90 days, from the end of a particular quarter.

After nationalization, the Indian banking sector has made symbolic development in three aspects–
branch expansion, deposit mobilization and loan maximization but among the above three
management and monitoring of loans took a back seat. The origination of banking in India took place
in the last decade of the 18th century and private sector and public sector banks are the essential part
of banking system in India. At the present scenario, the Indian banking system is not only employed
in their conventional business of accepting and lending money but have expanded their activities into
advanced fields of operations like merchant banking, leasing, housing finance, mutual funds and
venture capital Banking institutions, now a days are introducing and offering a great sum of inventive
and innovative schemes for mobilizing deposits. In extension, a lot of beneficial services are also
being provided by banking institutions to their customers such as issuing drafts, traveller‟s cheques,
gift cheques, accepting valuables for safe custody and modern banking facilities. Banking has
undergone critical changes since the process of liberalization and reform of the financial sector were
set in motion in 1991. The underlying aim to bring reforms and changes in financial sector is to make
the system more combative, able, beneficial and fruitful. For an economy to flourish, a firm and solid
banking sector is very necessary. There is a lot of injurious impact on other sectors due to the
breakdown of banking sector. Nonperforming asset (NPA), now a days has become one of the leading
concerns for banks in India. Sky high NPAs of banking institution advocate high possibility of a large
number of credit blunders that affect the profitability and net worth of banks and also corrode the
value of asset

A Non-performing asset can be elucidated as a credit facility in respect of which the interest and/or
installment of principle has remained „past due‟ for a specific period of time. It refers to a
classification for loans on books of financial institutions that are in default or are in arrears on
scheduled payments of principal or interest.

“An asset should be classified as non-performing, if the interest and/or principle amount has not been
received or remained outstanding for one quarter from the day such income/ installment have fallen
due.”

With a view to moving towards international best practices and to ensure greater transparency, it has
been decided to adopt the „90 days‟ over dues norm for identification of NPAs from the year ending
March 31, 2004. Accordingly, with effect from March 31,2004; a NPA is a loan or an advance where:

Interest and/or installment of principle remain overdue for a period of more than 90 days in respect for
a term loan;

The account remains „out of order‟ in respect of an overdraft or cash credit;

The bill remains overdue for a period of more than 90 days in the case of bills purchased and
discounted;

The installment of principle or interest thereon remains overdue for two crop seasons for short
duration crops;

The installment of principle or interest remains overdue for one crop season for long duration crops.

1.4 Types of Non-Performing Assets

Gross NPA: As per RBI guidelines, Gross NPA are the sum total of all loan assets that are classified
as NPAs as on Balance Sheet date. The nature of the loans made by banksis reflected by its Gross
NPA. It consists of all the non- standard assets such as substandard, doubtful and loss assets. It can be
calculated with the help of following ratio

Gross NPA = Gross NPAs / Gross Advances

Net NPA: All those type of NPAs in which the bank has deducted the provision regarding NPAs are
called Net NPA. It can be calculated by following:

Net NPA = Gross NPAs - Provisions / Gross Advances – Provisions

Types of Assets
Standard Assets: If the borrower routinely pays his dues regularly and on time; bank considers such
loan as its “Standard Asset”. All those assets for which the bank is receiving interest as well as the
principal amount of the loan regularly from the customer are referred to as Standard Assets. Such
assets carry a normal risk and are not NPA in the real sense. So, no special provisions are required for
Standard Assets.

Sub-standard Assets: If any loan or advance remains non-performing for a period of 12 months, it is
called as Sub-standard assets.

•Doubtful Assets: With effect from 31 March 2005, if any asset remains NPA for a period exceeding
12 months, it is to be classified as doubtful.

•Loss Assets: All those assets which cannot be recovered are called as Loss assets.

1.5 What can be the possible reasons for NPAs?

Nonperforming Assets (NPAs) can arise from several factors, often due to a combination of internal
and external reasons. Some of the most common causes of NPAs include:

1. Economic Downturns

Recession or slow economic growth can reduce the ability of borrowers to repay loans. During
periods of financial instability, businesses may face declining revenues, leading to cash flow issues,
making it difficult to meet loan obligations.

2. Poor Credit Assessment

If a bank or financial institution does not properly assess the creditworthiness of its borrowers before
issuing loans, it may lend to individuals or companies that have a higher risk of default. Inadequate
background checks, inaccurate credit scores, or reliance on faulty information can increase the
likelihood of NPAs.

3. Overleveraging by Borrowers

Borrowers who take on excessive debt relative to their income or business cash flows may struggle to
make repayments if their circumstances change, such as a decline in revenue or rising costs.
Overleveraging, especially in businesses, can result in a higher risk of default.

4. Mismanagement by Borrowers
Poor financial management or incompetence by borrowers can lead to default. This could be due to
inefficient business practices, lack of proper planning, or poor investment decisions. Companies or
individuals failing to adapt to changing market conditions or misallocating funds can end up with cash
flow problems, leading to NPAs.

5. Industry-Specific Issues

Certain industries are more prone to economic cycles and market conditions. For example:

Real estate: A slump in the real estate market can impact property developers and real estate investors,
making it harder for them to repay loans.

Agriculture: Factors like bad weather, crop failure, or natural disasters can affect farmers‟ incomes,
leading to loan defaults.

Manufacturing: A slowdown in industrial production, price volatility, or labor strikes can affect the
ability of manufacturers to meet repayment deadlines.

6. Regulatory or Policy Changes

Government or regulatory changes, such as interest rate hikes, taxation policy changes, or trade
restrictions, can disrupt borrowers' ability to repay loans. For example, higher interest rates may make
loan repayments unaffordable for some borrowers.

7. External Shocks or Natural Disasters

Natural disasters, political instability, or unexpected events like pandemics (e.g., COVID-19) can
affect borrowers‟ ability to earn income and repay loans. For example, floods or earthquakes can lead
to business closures, property damage, or loss of income.

8. Fraud or Malpractice

Fraudulent activities or misrepresentation by borrowers or bank employees can also lead to NPAs. For
instance, borrowers may falsify financial statements or hide liabilities, and once the truth comes to
light, it may become difficult to recover the funds.

9. Delay in Project Completion (For Business Loans)

For loans given to finance business projects or infrastructure development, delays in project
completion can affect cash flow. If the project faces cost overruns or regulatory delays, the borrower
might struggle to meet the loan repayment schedule.

10. Inadequate Collateral or Security

If a loan is not backed by adequate collateral or if the collateral loses value, the bank may have
limited recourse in case the borrower defaults. Insufficient or improperly valued security can lead to
financial losses if the borrower defaults.

11. Weak Legal or Recovery Mechanisms

In some cases, the weakness of the legal framework or inefficiency in debt recovery mechanisms can
contribute to a high level of NPAs. If legal processes to recover dues are slow or cumbersome, banks
may struggle to resolve defaults quickly.
12. External Factors (Political or Geopolitical Events)

Political instability, wars, or changes in government policies in certain regions can lead to an increase
in NPAs. For instance, a political crisis could lead to companies shutting down, or international trade
barriers could impact the ability of exporters or importers to repay loans.

In Summary:

NPAs are caused by a mix of economic, financial, managerial, and external factors. While banks and
lending institutions try to manage these risks through proper credit assessments, diversification, and
risk management practices, some factors, like sudden economic changes or natural disasters, can be
hard to predict or control.

Other reasons
•Diversification of funds to unrelated business/fraud.

•Lapses due to diligence.

•Business losses due to changes in business/regulatory environment.

•Lack of morale, particularly after government schemes which had written off loans.

•Global, regional or national financial crisis which results in erosion of margins and profits of
companies, therefore, stressing their balance sheet which finally results into non-servicing of interest
and loan payments. (For example, the 2008 global financial crisis).

•The general slowdown of entire economy for example after 2011 there was a slowdown in the
Indianeconomy which resulted in the faster growth of NPAs.

•The slowdown in a specific industrial segment, therefore, companies in that area bear the heat and
some may become NPAs.

•Unplanned expansion of corporate houses during the boom period and loan taken at low rates later
being serviced at high rates, therefore, resulting in NPAs.

•Due to mal-administration by the corporates, for example, willful defaulters.

•Due to misgovernance and policy paralysis which hampers the timeline and speed of projects,
therefore, loans become NPAs. For example the

Infrastructure Sector.

•Severe competition in any particular market segment. For example the Telecom sector in India.

•Delay in land acquisition due to social, political, cultural and environmental reasons.

•A bad lending practice which is a non-transparent way of giving loans.

•Due to natural reasons such as floods, droughts, disease outbreak, earthquakes, tsunami etc. • Cheap
import due to dumping leads to business loss of domestic companies. For example the Steel sector in
India.
1.6 What is the impact of NPAs?
• Lenders suffer a lowering of profit margins.

•Stress in banking sector causes less money available to fund other projects, therefore, negative
impact on the larger national economy.

•Higher interest rates by the banks to maintain the profit margin.

•Redirecting funds from the good projects to the bad ones.

•As investments got stuck, it may result in it may result in unemployment.

•In the case of public sector banks, the bad health of banks means a bad return for a shareholder which
means that the government of India gets less money as a dividend. Therefore it may impact easy
deployment of money for social and infrastructure development and results in social and political cost.

•Investors do not get rightful returns.

•Balance sheet syndrome of Indian characteristics that is both the banks and the corporate sector have
stressed balance sheet and causes halting of the investment-led development process.

•NPAs related cases add more pressure to already pending cases with the judiciary.

1.7 What are the various steps taken to tackle NPAs?

NPAs story is not new in India and there have been several steps taken by the GOI on legal, financial,
policy level reforms. In the year 1991, Narsimham committee recommended many reforms to tackle
NPAs. Some of them were implemented.

The Debt Recovery Tribunals (DRTs) – 1993

To decrease the time required for settling cases. They are governed by the provisions of the Recovery
of Debt Due to Banks and Financial Institutions Act, 1993. However, their number is not sufficient
therefore they also suffer from time lag and cases are pending for more than 2-3 years in many areas.

Credit Information Bureau – 2000

A good information system is required to prevent loan falling into bad hands and therefore prevention
of NPAs. It helps banks by maintaining and sharing data of individual defaulters and willful
defaulters.

LokAdalats – 2001

They are helpful in tackling and recovery of small loans however they are limited up to 5 lakh rupees
loans only by the RBI guidelines issued in 2001. They are positive in the sense that they avoid more
cases into the legal system.
Compromise Settlement – 2001

It provides a simple mechanism for recovery of NPA for the advances below Rs. 10 Crores. It covers
lawsuits with courts and DRTs (Debt Recovery Tribunals) however willful default and fraud cases are
excluded.

SARFAESI Act – 2002

The Securitization and Reconstruction of Financial Assets and Enforcement of

Security Interest (SARFAESI) Act, 2002 – The Act permits Banks / Financial Institutions to recover
their NPAs without the involvement of the Court, through acquiring and disposing of the secured
assets in NPA accounts with an outstanding amount of Rs. 1 lakh and above. The banks have to first
issue a notice. Then, on the borrower‟s failure to repay, they can:

1.Take ownership of security and/or

2.Control over the management of the borrowing concern.

3.Appoint a person to manage the concern.

Further, this act has been amended last year to make its enforcement faster.

ARC (Asset Reconstruction Companies)

The RBI gave license to 14 new ARCs recently after the amendment of the SARFAESI Act of 2002.
These companies are created to unlock value from stressed loans. Before this law came, lenders could
enforce their security interests only through courts, which was a time-consuming process.

Corporate Debt Restructuring – 2005

It is for reducing the burden of the debts on the company by decreasing the rates paid and increasing
the time the company has to pay the obligation back.

5:25 rule – 2014

Also known as, Flexible Structuring of Long Term Project Loans to Infrastructure and Core
Industries. It was proposed to maintain the cash flow of such companies since the project timeline is
long and they do not get the money back into their books for a long time, therefore, the requirement of
loans at every 5-7 years and thus refinancing for long term projects.

Joint Lenders Forum – 2014

It was created by the inclusion of all PSBs whose loans have become stressed. It is present so as to
avoid loan to the same individual or company from different banks. It is formulated to prevent the
instances where one person takes a loan from one bank to give a loan of the other bank.

Mission Indradhanush – 2015

The Indradhanush framework for transforming the PSBs represents the most comprehensive reform
effort undertaken since banking nationalization in the year 1970 to revamp the Public Sector Banks
(PSBs) and improve their overall performance by ABCDEFG.
Appointments: Based upon global best practices and as per the guidelines in the companies act,
separate post of Chairman and Managing Director and the CEO will get the designation of MD &
CEO and there would be another person who would be appointed as non-Executive Chairman of
PSBs.

B-Bank Board Bureau: The BBB will be a body of eminent professionals and officials, which will
replace the Appointments Board for the appointment of Whole-time Directors as well as non-
Executive Chairman of PSBs

C-Capitalization: As per finance ministry, the capital requirement of extra capital for the next four
years up to FY 2019 is likely to be about Rs.1,80,000crore out of which 70000 crores will be provided
by the GOI and the rest PSBs will have to raise from the market.

Financial Year Total Amount

FY15-16 25,000 Crore

FY16-17 25,000 Crore

FY17-18 10,000 Crore

FY18-19 10,000 Crore

Total 70,000 Crore

D-DEstressing: PSBs and strengthening risk control measures and NPAs disclosure.

E-Employment: GOI has said there will be no interference from Government and Banks are
encouraged to take independent decisions keeping in mind the commercial the organizational
interests.

F-Framework of Accountability: New KPI(key performance indicators) which would be linked with
performance and also the consideration of ESOPs for top management PSBs.

G-Governance Reforms: For Example, GyanSangam, a conclave of PSBs and financial institutions.
Bank board Bureau for transparent and meritorious appointments in PSBs.

Strategic debt restructuring (SDR) – 2015

Under this scheme banks who have given loans to a corporate borrower gets the right to convert the
complete or part of their loans into equity shares in the loan taken company. Its basic purpose is to
ensure that more stake of promoters in reviving stressed accounts and providing banks with enhanced
capabilities for initiating a change of ownership in appropriate cases.

Asset Quality Review – 2015

Classify stressed assets and provisioning for them so as the secure the future of the banks and further
early identification of the assets and prevent them from becoming stressed by appropriate action.

Sustainable structuring of stressed assets (S4A) – 2016

It has been formulated as an optional framework for the resolution of largely stressed accounts. It
involves the determination of sustainable debt level for a stressed borrower and bifurcation of the
outstanding debt into sustainable debt and equity/quasi-equity instruments which are expected to
provide upside to the lenders when the borrower turns around.

Insolvency and Bankruptcy code Act-2016

It has been formulated to tackle the Chakravyuaha Challenge (Economic Survey) of the exit problem
in India. The aim of this law is to promote entrepreneurship, availability of credit, and balance the
interests of all stakeholders by consolidating and amending the laws relating to reorganization and
insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner
and for maximization of value of assets of such persons and matters connected therewith or incidental
thereto.

Pubic ARC vs. Private ARC – 2017

This debate is recently in the news which is about the idea of a Public Asset Reconstruction
Companies (ARC) fully funded and administered by the government as mooted by this year‟s
Economic Survey Vs. the private ARC as advocated by the deputy governor of RBI Mr. Viral
Acharya. Economic survey calls it as PARA (Public Asset Rehabilitation Agency) and the
recommendation is based on a similar agency being used during the East Asian crisis of 1997 which
was a success.

Bad Banks – 2017

Economic survey 16-17, also talks about the formation of a bad bank which will take all the stressed
loans and it will tackle it according to flexible rules and mechanism. It will ease the balance sheet of
PSBs giving them the space to fund new projects and continue the funding of development projects.

Summary

The need of the hour to tackle NPAs is some urgent remedial measures. This should include:

•Technology and data analytics to identify the early warning signals.

•Mechanism to identify the hidden NPAs.

•Development of internal skills for credit assessment.

•Forensic audits to understand the intent of the borrower.

 1.8 List of Public Sector bank in india

1.9 List of Private Sector bank in india

Sr. no. Name
AXIS BANK LIMITED
1
BANDHAN BANK LIMITED
2
CITY UNION BANK LIMITED
3
CSB BANK LIMITED
4
DCB BANK LIMITED
5
FEDERAL BANK LTD
6
HDFC BANK LTD.
7
ICICI BANK LIMITED
8
 IDBI BANK LIMITED
9
IDFC FIRST BANK LIMITED
10
INDUSIND BANK LTD
11
JAMMU & KASHMIR BANK LTD
12
KARNATAKA BANK LTD
13
KARUR VYSYA BANK LTD
14
KOTAK MAHINDRA BANK LTD.
15
LAKSHMI VILAS BANK LTD
16
NAINITAL BANK LTD
17
RBL BANK LIMITED
18
SOUTH INDIAN BANK LTD
19
TAMILNAD MERCANTILE BANK LTD
20
THE DHANALAKSHMI BANK LTD
21
YES BANK LTD.
22
 CHAPTER 2-
LITERATURE REVIEW
CHAPTER: 2 LITERATURE REVIEW
The issue of NPAs has been a major area of concern for the lenders and the policymakers. Various
research studies have been made to understand the causes contributing to the rise in NPAs, measures
that should be taken to resolve the issue in its nascent stage and reforms that have come into effect to
reduce the piling up of NPAs. Some of the relevant studies are arranged in a chronological sequence

. Karunakar et al. (2008) discuss the various factors that boost NPAs, their size, their effect on
Indian banking operations and suggest measures to control the curse on the banking industry. Use of
suitable credit assessment and risk management methods is the key to solve the problem of NPA
accumulation.

Rajeev and Mahesh (2010), in their article deal with the issue of NPAs after the global financial
crisis. They suggest that mere recognition of the problem and self-monitoring can help to manage the
NPA problem to a great extent. Self-help groups can also play an important role in the recovery of the
loans.

Barge (2012) examines that early monitoring and management of lent funds is the necessity of the
hour. The study suggests several measures like better supervision of end use of funds, information
about the credit history of the borrower and assisting the borrowers to develop entrepreneurial skills to
ensure that the asset does not convert into a non-performing asset.

Gupta (2012) makes a comparative study of the position of NPAs of State Bank of India (SBI) and
associates and other public sector banks. The researcher concludes that for evaluation of the solvency
of borrowers each bank should set up a separate credit rating agency. It also suggests the need for a
committee comprising of financial experts to supervise and monitor the issue of NPAs.

Shalini (2013) has analysed the causes and suggested remedies for reducing NPAs in Indian public
sector banks with special reference to the agricultural sector. The analysis of the different problems
faced by the Indian farmers deduces the conclusion that banks should follow some measures before
lending the loan. Prior collection of reports regarding the goodwill of the farmers, post sanction
inspection, educating the farmers regarding the effects and consequences of defaulting are some of the
suggested measures.

Singh (2013) in the investigation on the position of Indian commercial banks with regard to NPAs
finds that these poor quality loans are a major problem for the public sector banks, which show a
consistent rise over the years. The main contribution comes from the loans directed at the micro sector
and for poverty alleviation programmes

. Bhaskaran et al. (2016) in their paper have compared the NPAs of public sector banks and private
sector banks over a period of ten years (2004-2013). From their study, it is evident that private sector
banks are performing better than public sector banks in reducing the level of NPAs. The authors
propose that banks should be proactive in adopting structured NPAs management policy where
prevention of NPAs receive priority

Thomas and Vyas (2016) in a recent study on loan recovery strategy of Indian banks suggests two
measures, preventive and corrective. The paper also discusses several corrective measures – legal,
regulatory and non-legal that are to be taken to recover the non-performing loans. Singh (2016) in
another recent study on NPAs and recovery status find that the problem is more severe for the public
sector banks compared to the private sector banks. The academic review points to the need to have
strict lending policies for speedy recovery of loans.

Meher (2017) in the post-demonetisation period looks into the impact of the government‟s notebandi
decision on the NPA of Indian Banks. The researcher finds both positives and negatives of the event
on the banking industry.

Sengupta and Vardhan (2017) have compared the two banking crisis episodes post-liberalisation-
one that took place in the late 1990s and the other that commenced after the 2008 global financial
crisis that raised the issue of NPAs. The authors are of the view that strong governance, proactive
banking regulations and a strong legal framework for resolution of NPAs would assist in solving the
problem of NPAs. On the other hand, regulatory forbearance would adversely affect the banking
crisis.

Mittal and Suneja (2017) have analysed the level of NPAs in the banking sector in India and the
causes that have led to the rise in NPAs. They have proposed that though the government has taken a
number of steps to reduce the problem of NPAs, bankers should also be proactive in adopting well-
structured policies to manage NPAs. The loan should be sanctioned after considering the return on
investment of a proposed project and the credit-worthiness of the customers.

Sahni and Seth (2017) study the different causes responsible for rising NPAs and the impact it has on
the operation of banks. The authors have mentioned several preventive and curative measures to
control the NPAs. They have suggested that proper assessment regarding the credit-worthiness of the
borrower should be done to ensure the speedy recovery of loans.

Mishra and Pawaskar (2017) have recommended that banks should have a good credit appraisal
system so as to avoid NPAs. They point out that the problem of NPAs can be solved if there is a
proper legal structure to support the banks in recovery of debt. Banerjee et al. (2018) have examined
the status of gross NPAs and net NPAs in private sector banks and public sector banks to study their
effect on the asset quality of the banks. Deliberate loan defaults, poor credit management policies,
sanctioning of loans without analysing the risk-bearing capacity of the borrowers are the main reasons
for piling up of NPAs. The banks should stress on better strategy formulation and its proper execution
as well. Stringent provisions by the government could help in reducing the level of NPAs.

Mukhopadhyay (2018), in his paper, has discussed about finding solutions to India‟s NPA woes. He
has suggested that to resolve the problems of NPAs the RBI should not abide by a single model,
instead, an innovative and flexible approach is needed for each affected bank, which should differ on
case-by-case basis.

Kumar (2018), in her study has found that NPAs have a serious negative impact on the profitability
and liquidity of the banking sector. According to her if the issue of NPAs is managed efficiently, then
many microeconomic issues such as poverty, unemployment, imbalances of balance of payments can
be reduced, the money market can be strengthened, and thus, the image of Indian banking system can
be improved in the international market

. Sharma (2018) emphasises the role of the banking sector as an instrument of economic growth and
development. The paper discusses how banks are burdened due to growing NPAs especially in case of
public sector banks. The author states a number of preventive measures that would curtail the level of
NPAs. Viable regulatory standards and timely implementation of them could pave the way for a
strong financial sector in India.

Dey (2018) in a very recent research paper looks at the recovery aspect of recovery of poor loans of
the Indian commercial banks. The author finds the role of DRTs to be much better compared to the
recovery through Lok Adalats and SARFASEI Act. Kumar et al. (2018) make an interesting study to
find out the main reasons behind accumulating NPAs. They find the main reasons to be industrial
sickness, change in government policies, poor credit appraisal system, wilful defaults and defect in the
lending process.

Mona (2020) in her research titled” COMPARATIVE ANALYSIS OF NON PERFORMING

ASSETS IN PUBLIC SECTOR BANK AND PRIVATE

SECTOR BANK”considers data of public sector bank and private sector bank of last five years. The
research paper attempts to evaluate various ratios of non performing assets on the basis of secondary
data. This research paper gives conceptual idea about meaning of non performingassets; various ratios
related to non performing assets and lastly, compare non performing assets in public sector bank and
private sector bank.

MeenuBhandari (2019) in her study titled “A Study of Non-Performing Assets (NPAs) of Public and
Private Sector Banks- Comparative Analysis” she concluded that The problem of NPAs in Indian
Banking Sector affects the market conditions of the economy also. Sometimes, banks feel unwilling to
lend, which may be a totally adverse condition for the growth and development of the economy.
Slowdown in the domestic market as well as drop in the prices in the global markets may worsen the
conditions of NPAs. Gross NPAs of the

Commercial Banks has been increasing over the years. Net NPAs of Commercial Banks has also
increased in the recent trend over the years.

CHAITRA K.S, VASU V (2018) in their research study titled

“COMPARATIVE STUDY ON NON-PERFORMING ASSETS OF

SELECTED PRIVATE AND PUBLIC SECTOR BANKS” is to analyze the comparative study of the
NPA factor and returns on assets of the PSU banks and private sector for the period of five years i.e.,
from 2013- 14 to 2017-18. The study has considered various parameters for measuring the
performance.

Dr.A.BalaMurugan, S.Balammal , M.KanthaPriya , R.Kamatchi(2018) in their research titled “A

Comparative Study of NPAS in Public & Private Sector Banks in India “shows that extent of NPA is
comparatively very high in public sector banks as compared to private banks. Although various steps
have been taken by government to reduce the NPAs but still a lot needs to be done to curb this
problem. The extent of NPAs has comparatively higher in Public sector banks. To improve the
efficiency and profitability, the NPAs have to be scheduled, various steps have been taken by
governments to reduce the NPAs. The governments should also make more provisions for faster
settlements of pending cases and also it should reduce the mandatory lending to priority sector as the
major problem creating area.
Dr.SakshiArora, KritikaGoyal(2017) study entitled “NPA of Public and Private Banks: A
Comparative Study “ their focus of the study is to make the comparison between the position of NPA
in the selected private sector and public sector banks s one bank each of private sector as well as
public sector banks. Private Sector: Axis Bank Public Sector: Punjab National Bank.

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.
CHAPTER-3
RESEARCH METHODOLGY
CHAPTER:3 RESEARCH METHODOLOGY

3.1 Research topic

A study on NPA of public sector bank and private sector bank.

3.2 Significance of study

This study is very useful to the banks to know their non performing assets as compared to other banks.
Today all the banks are facing the problem of non performing assets. This analysis of non performing
assets is very useful to know their non performing assets and causes of non performing assets. The
main source of income of any bank is the interest on loan. if any borrowers is not paying any interest
amount and principle amount then it creates non performing assets. Non performing assets are directly
affecting to the income and profitability.

3.3 Research problem

The main source of income of bank is interest on loan. The performance of any bank is dependent on
the income or profitability. But today the major problem in any bank is non performing assets. So non
performing assets is affecting to the performance of bank because profitability is dependent on the
interest on loan , and if bank is not able to recover interest amount and principal amount then it
creates non performing assets. Profitability is directly depended on non performing assets. This
research study is based on analysis of non performing assets in public sector bank and private sector
bank.

3. 4 Objective

To compare non performing assets in public sector bank and private sector bank.

To analyze and compare gross non performing assets in public sector bank and private sector bank.

To analyze and compare net non performing assets in public sector bank and private sector bank.

To analyze relationship between profit and non performing assets in public sector bank and private
sector bank.

3.5 Research Design

Descriptive research design.

3.6 Sources of data

In this study I used secondary sources of data to analyze and compare non performing assets in public
sector bank and private sector bank.

3.7 Population of study

In this study population includes the all public sector and private sector banks in India.

3.8 Sample unit & size

In this study I used total 5 years financial data from 2015-16 to 2019-20 of public sector bank and
private sector bank.

3.9 Limitation of study

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, which ignores the impact of inflation.

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.
CHAPTER4-
DATA ANALYSIS AND
INTERPRETATION
CHAPTER: 4 DATA ANALYSIS & INTERPRETATION

To analyse the data, first of all we need to study about what data analysis and interpretation Is. It is
the process by which sense and meaning are made of the data gathered in qualitative research, and by
which the emergent knowledge is applied to clients' problems. This data often takes the form of
records of group discussions and interviews, but is not limited to this. Through processes of revisiting
and immersion in the data, and through complex activities of structuring, re-framing or otherwise
exploring it, the researcher looks for patterns and insights relevant to the key research issues and uses
these to address the client's brief.

In this chapter some comparative analysis have been done to achieve the objectives of the study This
is accomplished through various ratios analysis and correlation between net profits and net NPA's.

4.1COMPARATIVE RATIOS

4.1.1 Gross NPA‟s Ratio (%)

Gross NPA Ratio = Gross NPA‟s / Gross Advances *100

Table:1 GROSS NPA TO GROSS ADVANCES RATIO

GROSS NPA TO GROSS ADVANCES RATIO

year public sector private sector

bank bank
2014-15 5 2.1
2015-16 9.3 2.8
2016-17 11.7 4.1
2017-18 14.6 4.7
2018-19 11.6 5.3
2019-20 10.25 5.45
Figure :1GROSS NPA TO GROSS ADVANCES RATIO

Gross NPA Ratio

16
14
12
10
8
6
4
2
0
2014 -15 2015 -16 2016 -17 2017 -18 2018 -19 2019 -20

public sector bank private sector bank

Interpretation:

1. Public Sector Banks:

The Gross NPA to Gross Advances ratio for Public Sector Banks has been steadily increasing from
5.0% in 2014-15 to 10.25% in 2019-20.

This increase shows a deteriorating trend in asset quality, meaning that a larger portion of the loans
issued by public sector banks are turning into NPAs over the years.

The sharpest increase was between 2014-15 and 2015-16, when the ratio jumped from 5.0% to 9.3%.
This could be indicative of a significant rise in defaults or weaknesses in loan recovery during that
period.

The ratio slightly declined in 2018-19 and 2019-20, but it remains at a high level, reflecting ongoing
challenges in managing NPAs.

2. Private Sector Banks:

Private sector banks have consistently had a lower Gross NPA to Gross Advances ratio compared to
public sector banks. However, the ratio has been gradually increasing from 2.1% in 2014-15 to 5.45%
in 2019-20.

While private sector banks' ratios remain significantly lower than public sector banks', the steady rise
over the years indicates that they are facing an increase in NPAs as well, though the increase is less
pronounced compared to PSBs.
The ratio peaked in 2019-20 at 5.45%, which suggests that the pressure on private sector banks from
NPAs has been increasing, possibly due to changes in the economic environment, riskier lending
practices, or exposure to certain sectors facing defaults.

Analysis:

Public Sector Banks (PSBs) have a much higher Gross NPA ratio than Private Sector Banks (PrSBs).
This indicates that public sector banks are facing a larger proportion of their loans turning into NPAs,
which points to weaker asset quality. The consistent rise in this ratio over the years highlights that
public sector banks are struggling more with loan defaults, which could be due to inefficient loan
recovery systems, exposure to riskier sectors, or weaker credit management practices.

Private Sector Banks, while also experiencing an increase in NPAs, have managed to maintain a
significantly lower ratio than public sector banks. This suggests that private sector banks are likely
better at managing their loan portfolios, with more effective risk assessment, stricter lending criteria,
or more robust recovery mechanisms.

The increase in NPAs for both sectors is a concern. For public sector banks, the rising NPAs represent
a more severe issue, as it indicates that the quality of their loan books is deteriorating at a faster pace.
Private sector banks, though facing an increase, are in a relatively better position overall in terms of
managing asset quality.

Conclusion:

The Gross NPA to Gross Advances ratio for Public Sector Banks is significantly higher, reflecting
their ongoing struggle with higher defaults and asset quality issues. This suggests a need for public
sector banks to improve their credit risk management and recovery processes.

Private Sector Banks are in a relatively stronger position, although their ratio has been steadily
increasing, indicating that even they are not immune to the rising trend of NPAs. However, the
increase is less severe, suggesting that they are still managing their portfolios more effectively than
PSBs.

Overall, both sectors are facing the challenge of increasing NPAs, but public sector banks need to
address their higher ratio of NPAs more urgently to maintain financial health and profitability

This analysis indicates the Gross NPA Ratio of Public Sector Banks and Private Sector Banks from
2015 till 2020. As we know very well that higher this ratio, more dangerous position it is for the
banks.

From the above chart we can clearly understand that rate of growth of Gross NPA of Public Sector
Banks is increasing since 2015 to 2018 which is 5% to 14.6% and in Private Sector Banks also it is
gradually increasing since 2015 from 2.1% to 5.45% in 2020.
But we can say that Gross NPA ratio of Public Sector Banks is decreases in last two years from 14.6%
to 11.6% and 10.25% in 2019 and 2020. whereas in Private Sector Banks it rises from 4.7% to 5.45%
only from year 2018 to 2020.

4.1.2 Net NPA Ratio (%)

Net NPA Ratio = Net NPA‟s/ Net Advances*100

Table:2 NET NPA TO NET ADVANCES RATIO

NET NPA TO NET ADVANCES RATIO

year public sector bank private sector bank

2014-15 2.9 0.9

2015-16 5.7 1.4

2016-17 6.9 2.2

2017-18 8 2.4

2018-19 4.8 2
Figure:2 NET NPA TO NET ADVANCES RATIO

Net NPA Ratio

9
8
7
6
5
4
3
2
1
0
2014 -15 2015 -16 2016 -17 2017 -18 2018 -19

public sector bank private sector bank

Interpretation:

1. Public Sector Banks (PSBs):

The Net NPA to Net Advances Ratio for Public Sector Banks has increased steadily from 2.9%
in 2014-15 to 8.0% in 2017-18, reflecting a deterioration in asset quality.

The ratio decreased slightly in 2018-19 to 4.8%, which may indicate some improvement or
successful efforts in recovering NPAs or provisions made for bad loans.

The sharp increase between 2015-16 and 2017-18 suggests that Public Sector Banks were
facing more severe loan defaults or a higher number of loans turning non-performing, and may
have had to make larger provisions for bad loans.

Despite the slight decrease in 2018-19, the level remains quite high, signaling that PSBs are
still grappling with significant NPAs relative to their net advances.

2. Private Sector Banks (PrSBs):

The Net NPA to Net Advances Ratio for Private Sector Banks also shows an increase from
0.9% in 2014-15 to 2.4% in 2017-18, reflecting a deterioration in their asset quality over time,
although the increase is more gradual compared to PSBs.

The ratio decreased in 2018-19 to 2.0%, signaling a modest improvement in asset quality or a
better management of NPAs.

Although Private Sector Banks also experienced a rise in NPAs, their ratios have remained
significantly lower than Public Sector Banks. This highlights that Private Sector Banks have
been more effective in managing credit risk and mitigating the impact of NPAs.

Analysis:
Public Sector Banks (PSBs):

The rising trend of Net NPA to Net Advances over the years (especially from 2.9% in 2014-15
to 8.0% in 2017-18) suggests that Public Sector Banks are facing increasing challenges in
managing non-performing loans.

The slight improvement in 2018-19 (a decrease to 4.8%) indicates some positive steps taken by
PSBs, such as more provisions or successful recovery efforts. However, the ratio remains
relatively high, showing that PSBs still have significant asset quality issues.

The sharp rise in the ratio between 2015-16 and 2017-18 could have been due to increased
defaults, poor loan recovery, or changes in lending practices.

Private Sector Banks (PrSBs):

While Private Sector Banks have also seen an increase in NPAs, their Net NPA ratio has
consistently been much lower than Public Sector Banks, indicating better management of loan
portfolios and a more robust approach to credit risk.

The increase from 0.9% in 2014-15 to 2.4% in 2017-18 is still relatively modest and reflects a
more gradual deterioration compared to PSBs.

The slight decline in 2018-19 (to 2.0%) shows that private banks are managing their NPAs
more effectively, possibly through better recovery systems or stricter lending practices.

Conclusion:

Public Sector Banks have faced a significant rise in NPAs over the years, with a particularly
sharp increase between 2015-16 and 2017-18, although the slight improvement in 2018-19
offers a glimmer of hope. PSBs still have much to improve in terms of managing NPAs.

Private Sector Banks, though facing some increase in NPAs, are in a better position relative to
Public Sector Banks. They are managing their loan portfolios more effectively and have a
significantly lower Net NPA to Net Advances ratio. The gradual rise in NPAs for private sector
banks is more manageable and reflects a more controlled approach.

In both cases, however, NPAs remain a serious challenge, and continued focus on asset quality
management, loan recovery, and risk assessment will be crucial for both sectors to improve
their financial health.

This analysis indicates the Net NPA Ratio of Public Sector Banks and Private Sector Banks
from 2014 till 2019. As we know very well that higher this ratio, more dangerous position it is
for the banks.

From the above chart we can clearly understand that rate of growth of Net NPA of Public and
Private Sector Banks is increasing since 2014 to 2018 which is 2.6% to 8% and 0.7% to 2.4%
respectively. But in the year 2019 ratio is decreases in public and private sector banks from 8%
to 4.8% and 2.4% to 2% respectively.
 But we can say that increase in Net NPA Ratio of Public Sector Banks is very alarming which
has increased by 2.2% whereas in Private Sector Banks it rises by 1.3% only from year 2014 to
2019.

4.1.3 Provisions Ratio (%)

Provision Ratio = Provisions/ Gross NPA‟s *100
Table : 3 PROVISION RATIO

FIGURE : 3 PROVISION RATIO

Provision Ratio
100

80

60

40

20

0
2014 -15 2015 -16 2016 -17 2017 -18 2018 -19 2019 -20

public sector bank private sector bank

INTERPRETATION: Decrease in Provision Ratios (2015-2017):

Public Sector Banks: The Provision Ratio decreased from 36.23% to 24.89% during the period from
2015 to 2017. This drop reflects a situation where the increase in NPAs was not matched by
corresponding increases in provisions, resulting in a weaker provision stance.

Private Sector Banks: Similarly, Private Sector Banks saw a decline in their Provision Ratio,
dropping from 90.46% to 63.96%. While Private Sector Banks had lower NPAs than Public Sector
Banks, they still reduced their provisions during this period, potentially reflecting improving loan
quality or a strategy to manage balance sheet growth.

Provision Ratio Trends Post-2017:

Public Sector Banks: After 2017, there was an attempt to increase the Provision Ratio in response to
higher NPAs, but overall, there was a 6.69% decrease by the end of 2020. This suggests that, despite
efforts to provision more, the increasing NPAs were still putting pressure on their financials.

Private Sector Banks: In contrast, Private Sector Banks reduced their Provision Ratio by 21.2%, even
though they had lower NPAs than Public Sector Banks. This could be attributed to their more
conservative approach to risk management and their preference to stay on the safer side, maintaining
higher provisions despite having relatively fewer NPAs.

Conclusion on Provisions:

Private Sector Banks: Although they have fewer NPAs compared to Public Sector Banks, they seem
to maintain a higher level of provisions, which is a sign of their more cautious and risk-averse
approach to managing potential future losses.

Public Sector Banks: On the other hand, they have been grappling with higher NPAs, but their
provisions haven‟t always kept pace with the increasing risks, leading to a decline in the provision
ratio over time.

This analysis indicates the Provision Ratio of Public Sector Banks and Private Sector Banks from
2016 till 2020. As we know very well that higher this ratio, more safe position for banks.

From the above chart we can clearly understand that due to increasing rate of Gross NPA‟s of Public
and Private Sector Banks, provisions made by these banks are decreasing since 2015 to 2017 which is
36.23% to24.89% and 90.46% to 63.96% respectively. After that in public bank Provision ratio is
increased but overall it is decreased by 6.69% and in private sector bank also its is 21.2%

We can say that if provisions are decreasing and private sector banks are having less NPA‟s as
compared to Public Sector Banks even then they are making more provisions to be on the safer side.
4.1.4 Comparison of Gross NPA Ratio and Net NPA of Public Sector Bank

Figure:4 Comparison of Gross NPA Ratio and Net NPA of Public Sector Bank

Public sector bank

16
14
12
10
8
6
4
2
0
2014 -15 2015 -16 2016 -17 2017 -18 2018 -19

gross npa ratio net npa ratio

4.1.4 Comparison of Gross NPA Ratio and Net NPA of Public Sector Bank
Table :4 Comparison of Gross NPA Ratio and Net NPA of Public Sector Bank

Interpretation:

This analysis indicates the relationship between gross NPA ratio and net NPA ratio. These both are
showing increasing trend from 2015 to 2018 in Public Sector Banks but is declines in last year by
80% and 60% respectively.
Above chart shows that gross NPA‟s are more as compared to net NPA, which means more provisions
are made by public sector banks so as to reduce the risk of non recovery.

4.1.5 Comparison of Gross NPA Ratio and Net NPA of Private Sector Bank
Table: 5 Comparison of Gross NPA Ratio and Net NPA of Private Sector Bank

PRIVATE SECTOR BANKS

Year gross npa ratio net npa ratio

2014-15 2.1 0.9

2015-16 2.8 1.4

2016-17 4.1 2.2

2017-18 4.7 2.4

2018-19 5.3 2

Figure:5 Comparison of Gross NPA Ratio and Net NPA of Private Sector Bank

Private sector bank

6
5
4
3
2
1
0
2014 -15 2015 -16 2016 -17 2017 -18 2018 -19

gross npa ratio net npa ratio

Interpretation:

This analysis indicates the relationship between gross NPA ratio and net NPA ratio. These both are
showing increasing trend from 2015 to 2018 in Private Sector Banks. But in 2019 net npa ratio is
decreased by 0.4 but gross npa ratio is still increased.
Above chart shows that gross NPA‟s are more as compared to net NPA, which means more
provisions are made by private sector banks so as to reduce the risk of non recovery.

4.2 COMPOSITION OF LOAN ASSET OF BANKS

4.2.1 Standard Assets Ratio (%)
Standard Assets Ratio = Total Standard assets / Gross NPAs
Table:6 standard asset ratio of public sector bank and private sector bank
STANDARD ASSET RATIO

public sector private sector

year
bank bank
2014- 19.17 46.18
15
2015- 9.79 34.14
16
2016- 7.57 23.26
17
2017- 5.86 20.10
18
2018- 7.63 17.76
19
2019- 8.75 17.34
20

Figure:6standard asset ratio of public sector bank and private sector bank

standard asset ratio

50

40

30

20

10

0
2014 -15 2015 -16 2016 -17 2017 -18 2018 -19 2019 -20

public sector bank private sector bank

Interpretation:

Private Sector Banks:

The standard asset ratio for Private Sector Banks has been consistently higher than that of Public
Sector Banks.

2014-15 started with a very high ratio of 46.18%, but it gradually decreased over the years to 17.34%
in 2019-20. This decrease indicates that the proportion of performing loans has been steadily
declining.

The reduction in the standard asset ratio could reflect an increasing level of non-performing loans
(NPAs) or a change in the bank's loan portfolio quality. Even though it decreased, it still remains
significantly higher than public sector banks, which suggests that private sector banks are maintaining
a better quality loan book relative to PSBs

Public Sector Banks:

The Standard Asset Ratio for Public Sector Banks started at 19.17% in 2014-15, but it has seen a
steady decline over the years, reaching 8.75% by 2019-20.

This decline in the standard asset ratio reflects a deterioration in asset quality for public sector banks
over time. They are increasingly holding a larger share of non-performing loans in their portfolios,
which is likely due to higher defaults or poor loan recovery.

However, there was a slight increase in the ratio in 2018-19 and 2019-20, suggesting a minor
improvement in loan quality or a reduction in NPAs.

Interpretation:

Private Sector Banks: Despite a decrease in the standard asset ratio, private sector banks continue to
show a relatively stronger asset quality compared to public sector banks. The decrease over time
could reflect increased competition, changes in the economic environment, or changes in lending
practices.

Public Sector Banks: Public sector banks are facing a gradual decline in their standard asset ratio,
indicating increasing levels of non-performing loans relative to performing loans. This could be due
to less stringent credit assessments, ineffective recovery mechanisms, or exposure to riskier sectors.

This analysis indicates the Standard Asset Ratio of Public Sector Banks and Private Sector Banks
from 2015 till 2020. As we know very well that higher this ratio, more advantageous it is for the
banks.
From the above chart we can clearly understand that the Standard Asset Ratio of Public and Private
Sector Banks is decreasing constantly from 2015 to 2020 & has fallen down to 17.34% from 46.18%
for Private Sector Bank & to 8.75% from 19.17% for Public Sector Bank.

So, overall we can determine that Private Sector bank is in beneficial position than Public Sector Bank

4.2.2 Sub-standard Assets Ratio (%)

Substandard Assets Ratio = Total sub–standard assets / Gross NPAs

Table : 7 substandard asset ratio of public sector bank and private sector bank
SUB STANDARD ASSET RATIO

year public sector bank private sector bank

2014-15 0.38 0.32

2015-16 0.37 0.33
2016-17 0.25 0.33
2017-18 0.24 0.25
2018-19 0.19 0.24
2019-20 0.20 0.29

Figure:7 substandard asset ratio of public sector bank and private sector bank

Sub standard asset ratio

0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
2014 -15 2015 -16 2016 -17 2017 -18 2018 -19 2019 -20

public sector bank private sector bank

Interpretation:

This analysis indicates the Sub-Standard Asset Ratio of Public Sector Banks and Private Sector
Banks from 2015 till 2020. As we know very well that lower this ratio, more advantageous it is for the
banks.

From the above chart we can clearly understand that the Sub-Standard Asset Ratio of Public and
Private Sector Banks is decreasing constantly from 2015 to 2020 & has fallen down to 0.29% from
0.32% for Private Sector Bank & to 0.20% from 0.38% for Public Sector Bank.

So, we can determine that Public Sector bank is in beneficial position than Private Sector Bank.

4.2.3 Doubtful Assets Ratio (%)

Doubtful Assets Ratio = Total doubtful assets / Gross NPAs
Table:8 Doubtful asset ratio of public sector bank and private sector bank
DOUBTFUL ASSET RATIO

year public sector bank private sector bank

2014-15 0.59 0.52

2015-16 0.60 0.55
2016-17 0.72 0.56
2017-18 0.70 0.68
2018-19 0.71 0.69
2019-20 0.63 0.52

Figure:8 Doubtful asset ratio of public sector bank and private sector bank

Doubtful asset ratio

0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
2014 -15 2015 -16 2016 -17 2017 -18 2018 -19 2019 -20

public sector bank private sector bank

Interpretation:

This analysis indicates the Doubtful Asset Ratio of Public Sector Banks and Private Sector Banks
from 2015 till 2020. As we know very well that lesser this ratio, more advantageous it is for the
banks.

From the above chart we can clearly understand that the Doubtful Asset Ratio of Public Sector Banks
is increasing slightly and Private Sector Banks is showing constant trend from 2015 to 2019. Since the
ratio for both the banks have a marginal difference, therefore the only thing which differentiates the

banks is that this ratio for public and Private it is decreasing in 2020. So, Private Sector Banks gain
advantage from this ratio.

4.2.4 Loss Assets Ratio (%)

Loss Assets Ratio = Total loss assets / Gross NPAs
Table :9 Loss asset ratio of public sector bank and private sector bank

Figure : 9 Loss asset ratio of public sector bank and private sector bank

Loss asset ratio

0.2

0.15

0.1

0.05

0
2014 -15 2015 -16 2016 -17 2017 -18 2018 -19 2019 -20

public sector bank private sector bank

Interpretation:
This analysis indicates the Loss Asset Ratio of Public Sector Banks and Private Sector Banks from
2015 till 2020. As we know very well that lower this ratio, more advantageous it is for the banks.

From the above chart we can clearly understand that the Loss Asset Ratio of Private Sector Banks is
decreasing constantly from 2015 to 2019 & has fallen

down to 0.04% from 0.15% for Private Sector Bank but it increased in 2020 by 0.13.

Public Sector Banks is increasing constantly from 2015 to 2020 & has rice up to 0.17% from 0.04% .

4.3 IMPACT OF NON-PERFORMING ASSETS ON PROFITABILITY

4.3.1 Correlation between Net Profit & Net NPA of Public Sector Bank
Table : 10 Correlation between Net Profit & Net NPA of Public Sector Bank
Correlations

NET NPA NET PROFIT

Pearson Correlation 1 -.698

Sig. (2-tailed) .123

NET NPA N 5 5

Pearson Correlation -.698 1

Sig. (2-tailed) .123

NET PROFIT N 5 5
4.3.2 Correlation between Net Profit & Net NPA of Private Sector Bank
Table : 11 Correlation between Net Profit & Net NPA of Private Sector Bank
Correlations

NET PROFIT NET NPA

Pearson Correlation 1 -.407

Sig. (2-tailed) .424

NET PROFIT N 5 5

Pearson Correlation -.407 1

Sig. (2-tailed) .424

NET NPA N 5 5

Relationship between Net Profit and Net NPA

To establish relationship between Net Profit and Net NPA Pearson‟s Correlation has been
used. Pearson‟s Correlation for Public Sector Banks is -0.698 and for Private Sector Banks is
-0.407.

Interpretation:

As we can see that correlation for Private Sector Banks is -0.407 and for Public Sector Bank
is -0.698. It means that there is a negative relation between Net Profits and NPA of Banks.
But in public sector banks it stated that strongly negative relation between net profit and net
NPA.

It simply means that as NPA increase and Profit decreases.

CHAPTER 5- FINDINGS
CHAPTER: 5 FINDINGS
1. Growth of Gross NPA to Gross Advances Ratio:

Increasing Gross NPA to Gross Advances Ratio: Both Public and Private Sector Banks are
experiencing an increasing rate of growth in the ratio of Gross NPAs to Gross Advances. This implies
that a higher proportion of the banks' total loans (advances) are becoming non-performing, meaning
that borrowers are failing to repay their loans.

This increasing trend suggests that the credit risk in the banking sector is rising, and both types of
banks are facing difficulties in managing loan repayments. Higher NPAs also indicate that banks may
need to allocate more capital to cover these potential losses, which can strain their resources.

2. Growth of Net NPA to Net Advances Ratio:

Similar to the trend in Gross NPAs, the Net NPA to Net Advances ratio for both public and private
sector banks is also increasing. This ratio represents the proportion of NPAs after deducting provisions
(money set aside for bad loans) in relation to the net advances (loans after deducting any provisions).

An increasing ratio here signals that the situation with bad loans is worsening even after considering
the provisions made by the banks. It suggests that, despite the efforts of banks to make provisions, the
overall health of the loan portfolio is declining.

3. Provisioning Practices:

Private Sector Banks Make More Provisions: Private sector banks have been more proactive in
making provisions for NPAs compared to public sector banks. Provisions are important because they
act as a cushion to absorb losses from bad loans. By setting aside more funds, private sector banks are
showing a higher level of caution.

However, Provision Levels Are Decreasing Over Time: Despite private sector banks having made
more provisions in the past, the trend shows that provisioning levels have been decreasing. This could
be due to a variety of reasons, such as improved asset quality, lower levels of new NPAs, or a more
optimistic outlook regarding the recovery of loans. However, a decrease in provisioning may also
indicate that banks are less cautious, which can be risky if NPAs continue to rise in the future.

4. Standard Asset Ratio:

Private Sector Banks in a Better Position: The Standard Asset Ratio refers to the proportion of
performing loans to total loans. Private sector banks are in a better position compared to public sector
banks here, meaning they have a higher share of loans that are performing (i.e., being repaid on time)
compared to non-performing or sub-standard loans.
This shows that private sector banks have managed their credit risk better and have more efficient loan
management practices, leading to a healthier loan book. They may also have more stringent lending
criteria or better risk assessment practices.

5. Sub-Standard Assets:

Decrease in Sub-Standard Assets: Both public and private sector banks are witnessing a decrease in
sub-standard assets, which are loans that are overdue but still expected to be recovered. This is a
positive sign, as it suggests that both sectors are improving their recovery efforts or are more cautious
in issuing loans that could eventually turn into sub-standard assets.

Similar Position for Both Sectors: Both public and private banks are at the same position in terms of
sub-standard asset reduction. This suggests that both sectors are making similar efforts in improving
loan quality and reducing overdue loans that are not yet classified as NPAs.

6. Doubtful Assets:

Doubtful Assets in Both Sectors: The doubtful assets of both public and private sector banks are
similar, indicating that both sectors have loans that are at a higher risk of becoming non-performing.
These loans are more likely to default in the future and require further provisioning.

Private Sector Banks Have an Advantage: Despite the similar levels of doubtful assets, private sector
banks have a more advantageous position. This could mean that they are better at managing these
doubtful loans, have more effective recovery mechanisms in place, or are less exposed to higher-risk
borrowers. This advantage could also stem from better credit risk management practices and more
proactive approaches to loan collection.

7. Loss Assets:

Increasing Trend in Loss Assets: Both public and private sector banks are witnessing an increase in
loss assets. These are loans that are unlikely to be recovered and have little to no value left. An
increase in loss assets signals that banks are facing growing difficulties in recovering loans, which
could be due to worsening economic conditions or an increase in borrower defaults.

This trend is worrying, as loss assets directly affect the profitability and capital adequacy of banks.
They need to take more aggressive measures to minimize these assets.

8. Negative Relationship Between NPAs and Profitability:

Public Sector Banks: There is a strong negative relationship between NPAs and profits in public sector
banks, meaning that as NPAs rise, the profitability of these banks declines sharply. This could be due
to the fact that public sector banks are often less efficient at recovering bad loans or have larger
amounts of non-performing loans in their portfolios. Additionally, higher NPAs lead to higher
provisioning costs, which reduces the funds available for generating profits.

Private Sector Banks: The relationship between NPAs and profits in private sector banks is also
negative, but not as strong as in public sector banks. Private sector banks might be better at managing
NPAs and could have more diversified revenue streams, which help cushion the impact of NPAs on
profitability. Their better asset quality management and more efficient operations may allow them to
absorb NPAs more effectively than public sector banks.

9. Impact of NPAs on Earning Capacity:

Reduction in Earning Capacity: NPAs significantly reduce a bank's earning capacity. The more loans
that become non-performing, the less income a bank generates from its loan portfolio, which is a
major source of revenue for most banks. Additionally, as banks must make provisions to cover
potential losses from bad loans, there is less capital available for lending or generating returns.

Impact on Profitability: Higher levels of NPAs also negatively affect profitability, as banks need to set
aside more funds for provisions, and these funds could otherwise have been used for growth or paying
dividends to shareholders. As a result, banks with high NPAs are likely to experience lower profits,
which affects their overall financial stability and investor confidence.

In summary, both public and private sector banks are facing increasing levels of NPAs, which are
negatively impacting their profitability and financial health. However, private sector banks seem to be
in a better position due to higher provisioning levels, better management of standard assets, and more
advantageous positions regarding doubtful assets. On the other hand, public sector banks appear to be
more severely impacted by NPAs, leading to greater challenges in maintaining profitability. Both
sectors need to focus on improving asset quality, reducing the rise in NPAs, and improving loan
recovery mechanisms to mitigate these challenges. The increasing trend of loss assets and the negative
relationship between NPAs and profitability call for urgent reforms in risk management, asset
recovery, and lending practices to ensure long-term stability and growth for both public and private
sector bank

The rate of growth of Gross NPA to gross advances ratio of Public Sector Banks and private sector
banks is increasing over the years .

The rate of growth of Net NPA to Net advances ratio of Public and Private Sector Banks is increasing
over the years.

It states that Private sector banks makes more provisions in gross NPA & gross advances as compared
to Public Sector Banks. But also it is decreased over the years.

Private Sector bank is in beneficial position than Public Sector Bank in standard asset ratio.

The sub-standard assets of both the banks are decreasing both the banks are at same position.

Doubtful assets of Public sector bank and Private Sector Banks are quite same but private sector banks
have more advantageous position than public sector banks.

Loss assets of both banks are showing increasing trend.

There is a Strong Negative relation between NPA & profits of public sector banks and Negative
relation between NPA & profit of private sector banks.

NPAs reduce the earning capacity banks and badly affect the profitability of banks.
CHAPTER 6-CONCLUSION
Chapter: 6 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.

Although Public Sector Banks have good substandard assets when compared with Private Sector
banks but Private Sector Banks are more efficient than public sector banks with regard to all the other
factors which give them a good upper hand.

The Non-Performing Assets have always created a big problem for the banks in India. It is just not
only problem for the banks but for the economy too. The money locked up in NPAs has a direct
impact on profitability of the bank as Indian banks are highly dependent on income from interest on
funds lent.

This study shows that extent of NPA is comparatively very high in public sectors banks. Although
various steps have been taken by government to reduce the NPAs like S4A (Scheme for Sustainable
Structuring of Stressed Assets) 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 pending cases and also it
should reduce the mandatory lending to priority sector as this is the major problem creating area. So
the problem of NPA needs lots of serious efforts otherwise NPAs will keep killing the profitability of
banks which is not good for the growing Indian economy .
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