E00a6 Non Performance Assets - HDFC Bank

PROJECT REPORT
A STUDY ON NON PERFORMANCE ASSETS

AT
- HDFC BANKS, HYDERABAD
MASTER OF BUSINESS ADMINISTRATION
Submitted by
(Student Name)
HT NO: 21WJ1E****
Under the Guidance of

Mr. K. SANDEEP REDDY
ASSISTANT PROFESSOR
School of Management studies

GURUNANAK INSTITUTIONS TECHNICAL CAMPUS
(Autonomous)
PAGEN
CHAPTER CONTENTS
O.
CHAPTER - I INTRODUCTION
 Objectives of the study
 Need for the study
 Scope of the study
 Research Methodology
CHAPTER - II REVIEW OF LITERATURE
CHAPTER -
COMPANY PROFILE
III
CHAPTER -
THEORETICAL FRAMEWORK
IV
DATA ANALYSIS
CHAPTER - V
&INTERPRETATION
 Findings
CHAPTER -
 Suggestion
VI
 Conclusion
Annexure / Questionnaire
INDEX
ABSTARCT
CHAPTER -I
INTRODUCTION
INTRODUCTION
The Indian has been liberalized and globalize during the last decade or so. It has exposed
the Indian financial sector to international competition in fairly significant manner. To cope
with the growing competition in the present scenario the Indian banks have embarked on a
massive exercise to revamp the system. Despite the overall progress made by the financial
system over the years, the operational efficiency of the banking system has been
unsatisfactory, characterized by low profitability, high and growing NPAs and relatively low
capital base.
NPAs have turned out to be a major stumbling factor affecting the profitability of
Indian banks. Before 1992,bank did not disclose the bad debts sustained by them and the
provision made by them fearing that it may have an adverse impact. The banks used to take
income even on NPAs on accrual basis. This helped them to disclose false profits. Owing to
low levels of profitability, the banks owned funds had to be strengthened by repeated
intention of additional capital by the government. The introduction of prudential norms to
strengthen the banks financial position and enhance transparency is considered as a milestone
measure in the financial sector reforms. These prudential norms, which relate to income
recognition, asset classification, provisioning for bad and doubtful debt and capital adequacy
serve three great purposes.
1. Income recognition norms reflect a true picture of the income and expenditure of the
bank.
2. The asset classification and provisioning norms help in assessing the quality of the asset
portfolio of the bank.
3. They also act as tool of financial discipline and compel banks to look at the quality of
loans assets and the risk attached to the lending
In India, NPAs are considered to at higher levels than most other countries, have of late
attracted the attention of public as also of international institutions. This has gained further
prominence in the wake of transparency and disclosures measures initiated by R.B.I. during
the recent years .We have also to conform to international accounting standards, if Indian
banks are to get their due place and recognition in the global market.
The present study was undertaken in this context to analyze and understand the impact
of NPA are having on the performance of commercial banks in general there affecting the
whole financial system. The scope of this study is limited especially to the organization
selected ie. HDFC Bank.
Definition of 'Non Performing Assets'
Definition: A non performing asset (NPA) is a loan or advance for which the principal or
interest payment remained overdue for a period of 90 days.
Description: Banks are required to classify NPAs further into Substandard, Doubtful and Loss
assets.
1. Substandard assets: Assets which has remained NPA for a period less than or equal to 12
months.
2. Doubtful assets: An asset would be classified as doubtful if it has remained in the substandard
category for a period of 12 months.
3. Loss assets: As per RBI, "Loss asset is considered uncollectible and of such little value that its
continuance as a bankable asset is not warranted, although there may be some salvage or
recovery value."
1) Substandard assets: Assets which has remained NPA for a period less than or equal
to 12 months.
Non Performing Assets and its issues
Why in news?
The President has accorded his assent to an ordinance proposed by Cabinet giving more powers
to RBI to solve the massive NPA mess.
What is NPA?
 NPA is a loan or advance for which the principal or interest payment remained overdue
for a period of 90 days.
 Banks are required to classify NPAs further into Substandard, Doubtful and Loss assets.
 Substandard assets: Assets which has remained NPA for a period less than or equal to
12 months.
 Doubtful assets: An asset would be classified as doubtful if it has remained in the
substandard category for a period of 12 months.
 Loss assets: As per RBI, "Loss asset is considered uncollectible and of such little value
that its continuance as a bankable asset is not warranted, although there may be some
salvage or recovery value."
What is the issue with NPA?
 The total size of the banking sector’s NPAs is estimated at over Rs 6.7 lakh crore, of
which no less than Rs 6 lakh crore is accounted for by state-owned banks or public sector
banks (PSB).
 Approximately 16% of loans and advances of banks are stressed assets (NPA +
restructured accounts + write offs).
 This is higher than BRICS partners except for Russia.
 This is alarming given that capital adequacy ratio threshold for banks are prescribed at
12%.
 Stressed assets for public sector banks are 17% while for private banks, it is 7% and for
foreign lenders it is 6%.
 The asset quality of PSU banks is the worst amongst the lot.
 In the boom years, Indian companies took on significant loans to ramp up capacities.
 But while debt galloped, underlying assets did not grow at the same pace.
What does the new ordinance offer?
 An ordinance to amend the Banking Regulation Act of 1949 has been issued.
 The Presidential Ordinance empowers the Reserve Bank of India (RBI) to enforce
expeditious resolution of NPAs of banks.
 The Union government has now empowered itself to direct the RBI to take necessary
steps to initiate the NPA resolution process once a default has been established.
 The earlier provisions of the Banking Regulation Act did not allow the government to
direct the RBI to enforce NPA resolution for cases of default.
 On one hand this new provision is an intrusion into central banks sole authority, but on
other hand projects the role of the political establishment as a proactive agent in bank
NPA resolution.
 NPA resolution under the amended law can take place on specific directives of the Union
government.
 The ordinance also links the Bankruptcy code to the Banking regulation act.
 The Ordinance also allows the RBI to set up oversight committees for banks with NPAs
that remain a matter of concern requiring early resolution.
 This will certainly empower the central bank to enforce a closer supervision of banks
with sticky loans.
 The ordinance is likely to give flexibility to banks to resolve bad accounts and give
immunity to bankers from taking legal action in future.
What does the ordinance does not offer?
 The ordinance doesn't address basic issue as to why NPAs arise.
 It doesn't provide solutions to challenges faced by banks.
 To ensure NPAs in future remain in control, a tectonic cultural shift and massive IT up-
gradation is required.
 The ordinance doesn’t propose making wilful default a criminal offence as publicised.
 Instead of dealing with the issue of external constraints as envisioned by the PJ Nayak
committee such as dual regulation by the finance ministry and the RBI, board
constitution, etc, the Centre has taken a step back.
 Divesting them of the autonomy to take commercial decisions does little to instil
confidence in banks.
Why is there a need for such a move?
 Both the Insolvency and Bankruptcy Code 2020 and the Banks Board Bureau have done
little to improve governance at PSBs.
 The bank managements were shy of settling deals that would clean up their balance sheet.
 That was because such decisions could also incur the wrath of the investigation and
vigilance departments of the government for having entered into, what they would argue
were, sweetheart deals.
 At the same time, the bank managements showed no firmness in forcing the borrowers to
take haircuts and lose equity in the troubled projects for which the sticky loans were
obtained.
 The policy as well as regulatory environment was such that asset reconstruction
companies (ARCs) were unable to strike deals on buying sticky loans on which they
hoped to make reasonable returns.
 On the other hand, the bank managements were not bold enough to sell the sticky assets
to ARCs at such discounts as would make the deal remunerative.
 This called for regulatory reforms that, on the one hand, would have allowed ARCs to be
floated by private equity firms that could take the risks.
 And, on the other, would have allowed banks to take the financial hit on such loans in
return for a more healthy-looking balance sheet.
 Thus the ordinance is an attempt at tackling the growing problem of the economy’s twin
balance-sheet problem (indebted borrowers and NPA-burdened lenders).
2) Doubtful assets: An asset would be classified as doubtful if it has remained in the

Assets for a bank are the loans it has given and investment made by the bank. Most important
assets for banks are loans given by it. Similarly, banks make investment in government securities
by purchasing them.
Usually, the health as well as the financial condition of a bank is measured through the
proportion of bad assets or Non Performing Assets with it.
Simply, NPA indicates the amount of loan that was not returned by the customer. An asset
becomes non-performing when it ceases to generate income for the bank.
As per the current norm, if a loan is overdue during the last 90 days, it will be categorized as a
Non Performing Asset (NPA). A loan whose interest and / or installment of principal have
remained 'overdue due' for a period of 90 days is thus considered as NPA. Overdue is a situation
where the loan is not paid by the due date fixed by the bank.
From the banks’ health point of view, higher the NPA, lower will be its health. Attempt to
strengthen a bank is mainly concentrated on NPA management.
Some of the assets of the banks may not have returned or were not repaid for a considerable
point of time. Here, to measure the seriousness of repayment delay, assets are classified into
different categories.
How assets are classified?
Assets of a bank are classified in terms of its repayment status. Standard assets, substandard
assets, doubtful assets and loss assets are classifications of asset quality.
For a bank, classification of assets into different categories should be done taking into account
credit weaknesses and the extent of dependence on collateral security for realization of dues.
What is a standard asset?
Standard Asset is one which does not disclose any problems and which does not carry more than
normal risk attached to the business. Such an asset should not be an NPA.
What is a substandard asset?
A substandard asset would be one, which has remained NPA for a period less than or equal to 12
months.
What is a doubtful asset?
An asset would be classified as doubtful if it has remained in the substandard category for a
period of more than 12 months.
What is a loss asset?
An asset that is an NPA for a period of more than 36 months is treated as a lost asset. Such asset
has been identified by the bank or internal or external auditors or by the RBI inspection but the
amount has not been written off wholly. In other words, such an asset is considered uncollectible.
Loss assets should be written off. If loss assets are permitted to remain in the books for
any reason, 100 percent of the outstanding should be provided for. This means that full amount
of the loss assets should be kept from some other sources like profit of the bank to meet the loss.
The mechanism of Provisioning is done to address the asset quality deterioration for a bank’s
assets. The worse is the assets’ quality; higher will be the provisioning coverage ratio.
Banks should make provision against substandard assets, doubtful assets and loss assets in a
differential manner.
3) Loss assets: As per RBI, "Loss asset is considered uncollectible and of such little
value that its continuance as a bankable asset is not warranted, although there may
be some salvage or recovery value."
Article I. NON PERFORMING ASSETS ORDINANCE: TO EMPOWER RBI
The Presidential Ordinance legally empowers the Reserve Bank of India (RBI) to enforce
expeditious resolution of non-performing assets (NPAs) of banks, an area where recovery has
been a painfully slow process.
1. The RBI will be empowered to issue directions to banks to initiate insolvency resolution
process in the case of loan default.
2. The Ordinance also allows the RBI to set up oversight committees for banks with NPAs
that remain a matter of concern requiring early resolution. This will certainly empower
the central bank to enforce a closer supervision of banks with sticky loans.
3. This will provide a big boost to the government’s efforts to tackle mounting bad loans.
The RBI has been equipped with powers to specify one or more authorities to advise
banks for dealing with the problem of non-performing assets (NPAs).
FACTS AND FIGURES
NON PERFORMING ASSETS
An asset, including a leased asset, becomes non performing when it ceases to generate income
for the bank. A non performing asset (NPA) is a loan or advance for which the principal or
interest payment remained overdue for a period of 90 days.
Banks are required to classify NPAs further into Substandard, Doubtful and Loss assets.
1. Substandard assets: Assets which has remained NPA for a period less than or equal to
12 months.
2. Doubtful assets: An asset would be classified as doubtful if it has remained in the
3. Loss assets: As per RBI, “Loss asset is considered uncollectible and of such little value
that its continuance as a bankable asset is not warranted, although there may be some
salvage or recovery value.
The Reserve Bank of India is the supreme monetary and banking authority in the country. It
keeps the cash reserve of all scheduled banks and hence is known as Reserve Bank. It was
established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act,
1934. Though originally privately owned, since nationalization in 1949, the Reserve Bank is
fully owned by the Government of India. Its main function includes; formulate, implements and
monitors the monetary policy, prescribes broad parameters of banking operations within which
the country’s banking and financial system functions, Manages the Foreign Exchange
Management Act, 1999, Issues and exchanges or destroys currency and coins not fit for
circulation, Banker to the Government: performs merchant banking function for the central and
the state governments; also acts as their banker. RBI Governor Urjit Patel.
Article 123 of the Indian Constitution empowers the President to promulgate ordinances
during the recess of the Parliament. The ordinances are temporary laws having the effect of an
act. It is considered one of the important legislative powers of the President, however is subject
to limitations like
1. If at any time, except when both Houses of Parliament are in session, the President is
satisfied that circumstances exist which render it necessary for him to take immediate
action, he may promulgate such Ordinance as the circumstances appear to him to require
(2) An Ordinance promulgated under this article shall have the same force and effect as an Act of
Parliament, but every such Ordinance
(a) shall be laid before both House of Parliament and shall cease to operate at the expiration of
six weeks from the reassemble of Parliament, or, if before the expiration of that period
resolutions disapproving it are passed by both Houses, upon the passing of the second of those
resolutions; and
(b) may be withdrawn at any time by the President Explanation Where the Houses of Parliament
are summoned to reassemble on different dates, the period of six weeks shall be reckoned from
the later of those dates for the purposes of this clause.
2.5 STATEMENT OF PROLEM
A casual interaction with the officials of the bank revealed that NPA is a severe factor, which
has been affected their profitability for years. Therefore the problem identified is to understand
and identify the drawback of the current recovery strategy and to come out with a set of
recommendation which will help them to effective recovery of borrowings. Therefore the
problem chosen for the study of “analysis of NPA in commercial banks with special reference
to HDFC Bank Limited”.
2.1. OBJECTIVE OF THE STUDY
The general objective of the study was to analyze the NPA level in commercial banks.
However the study was conducted with the following specific objectives.
1. To analyze the NPA level of HDFC bank Limited.

2. To study the recovery procedures of HDFC Bank Limited.
3. To examine how far the bank has been successful in reducing the NPA level.
4. To suggest measures for efficient management of NPAs.
5. To bring out en explorative & descriptive report on “Analysis of NPA in commercial
banks, with special reference to HDFC Bank Ltd., Hyderabad.”
SCOPE OF THE STUDY
The was conducted in the Head Office of the HDFC Bank limited in Hyderabad. The
following are the main scope of the study:
 Scope of this study is limited to the organization selected ie. HDFC bank.
 Present a picture of the movement of NPA in HDFC Bank Limited.
 This study will help to know the drawbacks of the present recovery strategies.
 This study will help them to think about new innovative recovery strategy.
 For this purpose I have covered officials of the bank from various department.
Finance Manager of the bank, is covered in this study and he is interviewed in presence of the
other departmental officials of the bank.
RESEARCH METHODOLOGY OF THE STUDY:
A purposeful investigation of a problem research helps an organization in finding out causes and
clues for making sound and effective decisions by applying scientific methodology to the art of
management. Research can be of two types namely Exploratory research and Conclusive
research.
Exploratory research is investigation of relationships among variables without

knowing why they are studied. It borders on an idle curiosity approach, differing from it only
in that the investigator thinks there may be a payoff in the application somewhere in the forest
of questions. In Conclusive research there are two types namely Descriptive research and
Experimental research.
Descriptive research allows both implicit & explicit hypotheses to be tested depending
on the research problem. Experiments are artificial in the sense that the situations are usually
created for testing purposes in experimental research. Based on all these facts and suggestion
from the project guide ‘Descriptive & Exploratory Research Methodology’ is adapted for this
project work.
Sampling Technique
Sampling refers to selecting a part of the population to represent the characteristics of the
population. However, in this study, Finance Manager of the bank is the source of data and
therefore, since he is the only one source of information, there is no question of any
sampling. He is interviewed at the Bank’s Head Quarters at Thrissur, Hyderabad, and the
necessary primary data is collected using Inventory Schedule. Both primary and secondary
data were collected & used for drawing conclusions for the study.
Primary data:- were collected using Inventory schedule & also through interview, held with
the Finance Manager in presence of the other officials of HDFC Bank Ltd.
Secondary data:- were collected from the published annual reports of the HDFC Bank and
other sources. Such data collected were analyzed for some kind of a trend and its impact on
the profit of the bank.
TOOLS USED FOR ANALYSIS OF DATA
The data collected were analyzed with the help of statistical tools like frequency, percentage
and trend analysis. Tables are used to represent the consolidated data. Graphical representation
is also used for better comprehension & presentation.
RESEARCH DESIGN
A study on the Management of Non Performing Assets in the HDFC Bank’s Loan Portfolio is
done at the HDFC Bank Donimalai Township, Sandur (TQ), Bellary (Dist), Karnataka State.
The type of research used for the collection & analysis of the data is “Historical Research
Method”.
The main source of data for this study is the past records prepared by the bank. The focus of the
study is to determine the non-performing assets of the bank since its inception & to identify the
ways in which the performance especially the non-performing assets of the HDFC Bank can be
improved.
The data regarding bank history & profile are collected through “Exploratory Research Design”
particularly through the study of secondary sources and discussions with individuals.
Data Collection Method

Discussion with the manager & officers of the bank to get general information about the bank &
its activities.
 Having face to face discussions with the bank officials
 By taking guidance from bank guide & departmental guide.
Secondary Data
 Collection of data through bank annual reports, bank manuals and other relevant documents.
 Collection of data through the literature provided by the bank.
Research Measuring Tool:

The tools used for data collection are:
1. Personal Interview
2. Secondary Sources
1. Personal Interview:
In this, discussions more held directly with the manager & officials to get the clear-cut
information about the topic and data to be collected for the purpose of analysis.
2. Secondary Sources:
Annual company reports, Balance Sheets, Profit & Loss account are used to collect the data.
LIMITATIONS OF THE STUDY:
 The study is mainly based on the secondary data provided by the bank. As such it is
subject to the limitations of the secondary data.
 The study is based only on NPAs with respect to loans.
 The study is based on the data given by the officials and reports of the bank. The
confidentiality of some facts and figures is a limitation.
 The non-availability of relevant information is one of the limitations.
 The study is done only for the limited past 3 years.
CHAPTER - II
REVIEW OF LITERATURE:
REVIEW OF LITERATURE:
Goyal Kanika (2010) studied the increment in gross and net NPAs. The study has been
performed on public sector banks and agriculture sector. The study focussed on secondary data
base and the data has been taken from the website of Reserve Bank of India. Various statistical
tool like regression and ANOVA has been applied. The results depicted that public sector banks
have been able to manage their assets properly but NPAs have been a matter of concern for
agriculture sector.
Kamalpreet Kaur and Balraj Singh (2011) studied the NPAs of Indian banking industry. The
research focussed on various aspects such as magnitude of NPAs, reasons of NPAs and impact
on Indian economy. The results depicted that out of whole Indian banking industry, public sector
banks have been lagging behind in managing their NPAs and authors suggested that Government
should take strict actions for the same.
Ramesh.K.V, Sudhakar.A., (2012) case studied the NPA management in public sector banks by
taking Canara and SBI bank. Secondary Data fetched for time horizon of ten years from 2000-
2010. It has been concluded that NPAs has not been properly managed in banks under study and
adversely affected the performance
Many studies have been conducted by researchers on NPAs in banking Industry. The researcher
has made attempts to present a brief review of literature available, which are published in the
form of research articles and technical papers published in the journals, magazines and websites
in the related area. The review of the literature is used to formulated theorical analysis of Non-
performing loans undertaken in the present study. This study is designed for analyzing NPA and
its impact on profitability in selected public sector and private sector banks in India.
Amandeep (1991) attempted to estimate profit and profitability of Indian Nationalized
banks and to study the impact of priority sector lending, credit policies, geographical expansion,
industrial sickness, competition, deposit composition , establishment expenses, ancillary income,
s[read and burden on bank profitability. For this purpose trend analysis, ratio analysis and
regression analysis were used.
Swamy (2001) studied the comparative performance of different bank groups since 1995-
96 to 1999-2000 . An attempt was made by researcher to identify factor which could have led to
changes in the position of individual banks in terms of their share in the overall banking industry.
He analysed the share of rural branches, average branch size , trend in bank’s profitability , share
of public sector assets , share of wage in expenditure , provision and contingencies, net NPA in
net advances , spread , has been calculated . He conducted that in many respects nationalized
public sector banks much better than private banks, even they are better than foreign banks.
Rituparna Das (2002) performed a research on Managing the Risk of NPA in the Small
Scale industries in India. IN this article the researcher tries to Seek a solution to the problem of
NPA in the small Scale industries under the present circumstancesof banking and insurance
working together under the same roof. What is stressed in this article is pressing need of the small
scale enterprenear for becoming aware and educated in modern business management holding a
professional attitude rational decision making and banks have to facilitate that process as a part of
the credit policy sold by them.
Prashanth K. Reddy (2002) in his research paper on the topic , “ A Comparative Study of
NPA in India in the Global context “ examined the similarities and dissimilarities , remedial
measures. Financial Sector reform in India has progressed rapidly on aspects like interest rate
deregulation , reduction in reserve requirements , barriers to entry, prudential norms and risk –
based supervision. The study reveals that the sheltering of weak institutions while liberalizing
operational rules of the game is making implementation of operational changes difficult and NPA
problem would have to span the entire gamut of judiciary, polity and the bureaucracy to be truly
effective. This paper deals with the experiences of the reforms on the level of NPA and suggests
mechanisms to handle the problem by drawing on experiences from other countries.
Dr. Amitabh Joshi (2003) conducted a survey on “ Analysis of NPA of IFCI ltd.” The
study found that profitability and viability of development financial institutions are directly
affected by quality and performance of advances. The basic element of sound NPA management
system is quick identification of Non-performing advances their containment at minimum levels
and ensuring that their impingement on the financial is at low level . Excessive reliance on
collaterals has led institutions to long drawn litigations and hence it should not be sole criteria for
sanction. Banks should manage their exposure limit to few borrowers and linkage should be
placed with net owned funds for developing control over high leverages of borrower level. Study
also revealed that exchange of credit information among banks would be immense help to them to
avoid possible NPAs. Management information system and market intelligence should be utilized
to their full potential.
Chandrashekhar and Ray (2005) show that PSBs have increasingly opted for investment in
risk- free returns of government securities , their share in total earning assets rising from 26 to 33
percent during the 21st century. But there is no doubt that enforcement of stringent prudential
norms , capital adequacy sipulations, setting up of the Board for financial Supervision (BFS) and
pressure to reduce NPAs have made banks so risk- verse that they have reduced their exposure to
private loans with even a modest risk of non- recovery .
Tamal Datta Chaudhuri (2005) examined the “ resolution Strategies for maximizing value
of NPAs” . The article indicates that defining capital adequacy adversely affects shareholder
value and restricts the ability of the bank to access the capital market for additional quity to
enhance capital adequacy . So, if a resolution strategy for recovery of dues from NPAs is not put
in place quickly and efficiently ,these assets would deteriorate in value over time and little value
would be realized at the end except may be its scrap value. The purpose of this paper is to indicate
the various consideration that one has to bear in mind before Zeroing on a resolution strategy and
provides a state- Resolution Mapping (SRM) frameworks.
Isaac k. Otchere (2005) conducted a study on the performance of privatized banks in

middle and low income countries shows mixed results by “ Competitive and value effects of bank
privatization in Developed courtiers .” The paper observed that private banks in developed
countries have experienced significant improvements in opersting performance. The improvement
in performance . The improvement in performance remains significant after controlling for
persistence in bank performance
. A comparison of the performance of privatized banks in developed and developing countries

suggests that privatization has encouraged excessive risk taking among privatized banks in
developing countries with the consequence that those banks carry large NPAs than their
counterparts in the developed countries . They also observed that consistent with the competitive
effect hypothesis, investors view privatization announcements as foreshadowing bad news for
rival banks.
Sathya (2005) examined the effect of privatizing of banks on performance and efficiency.
The time taken was for 5 years (1998-2002) and it was analyzed by using difference of means
test. The banking sector in India includes domestic banks as well as forign banks and objective of
this study is to study the impact of privatization on the banking firms. It was concluded that
partially privatized banks have performed better as compared to fully PSBs in respect of financial
performance and efficiency. Partially privatized banks have continued to show improved
performance and efficiency in the year after privatization.
Ved pal and Malik (2007) in their empirical paper examined the difference in financial
characteristics of public , private and foreign sector banks based on factors such as profitability ,
liquidity, risk and efficiency . Sample of 74 Indian commercial banks consisting of 24 public
sector , 24 private sector and 23 foreign banks were taken for the period of 2000-2005.
Multinomial regression analysis was used and results revealed that foreign banks proved to be
high performer in generating with a given level of resources and they are better equipped with
managerial practices and in terms of skills and technology. Foreign banks were more consistent
with market system as reflected in terms of net interest margin. The public banks emerged as the
next best performance after foreign banks. There were giving a higher return on equity in
comparison to foreign and private banks. It was high performance from expense rate and
efficiently ratio. The private banks emerged with a better use of resources as compared to PSBs.
Thomas p. Ferguson (2007) conducted a research on “ Observations on the securitization
of Non –performing loans in Russia.” Asset securitization is a burgeoning trend in Russia as
companies burdened by poor credit ratings seek access to capital at lower costs than they would
be allowed in traditional equity or debt markets. Study indicates that securitization of these bad
loans has not occurred in Russia at the levels one might expect. This has been due to both a
relatively small amount of loans that under perform as well as legal and regulatory impediments
that have discouraged investors and lenders alike. This article anticipates a significant rise in the
level of non-performing loans which will be logically paired with an increased interest of Russian
lenders in Securitizing these assets.
Usha Arora (2009) in the research on “ An Analytical Study of growth of Credit Schemes
of Selected Banks” analyzed and compared the performance ( in terms of loan disbursement and
non- performing assets) of credit schemes of selected banks for the last five years. Bank wise as
well as year wise comparisons are done with the help of compound Annual Growth Rate , mean
and Standard deviation and in the second part , a positive relationship is found between total loan
disbursement and total NPA of selected banks with the help of a correlation technique. The study
found a positive relationship between total loan disbursement and total NPA outstand of selected
banks.
Pach Malyadri(2011) in his research paper title “ A comparative Study on NPAs in India
banking Industry” analyze NPA in weaker sections of public Sector banks and private sector
banks specifically in India . The study observed that there is increase in advances over the period
of the study. However, the basis of analysis that there is significant improvement in the
management of NPAs of the public sector banks in India. It is suggested that government should
RBI for apliftment of public sector banks. PSBs should try to upgrade technology and should
formulate customer friendly policies to face competition at national and international level.
Dr. Nammita Rajput (2010) in her research paper title “ Profitability and Non-performing
Assets: Indian perspective” analyze the nature extent and magnitude of NPAs of SCBs ,as a
group. This study also analyses the impact of NPAs on the profitability of PSBs operating in
Indian . Further , the study could provide useful insights to assess if the changes in efficiency of
banks have been in the desirable direction and also useful in regulation and formulation of
policies. The analysis concluded that there is a diminishing trend in the ratios of NPAs as GNP
and NNPAs. There is a high degree of negative correlation between NPA Ratios with ROA.
Kaveri (2001) Studied the non- performing assets of various banks and suggested various
strategies to reduce the extent of NPAs.
Dong ( 2002) reviews the nature of NPAs in the Indian banking System and discusses the
key design features that would be important for the Assets Reconstruction Companies to play an
effective role in resolving such NPAs.
Muniappan (2002) expressed that the problem of NPAs is related to several internal and
external factors confronting the borrowers. The internal factors are diversion of funds for
expansion, diversification and mode mis action ; taking up new projects, helping promotion
associate concerns time ,cost overruns during the project implementation stage, business failure ,
inefficient management , strained labour relations, inappropriate technology problems, products
obsolescence, etc. Which external factors are recession , non-payment in other countries ,inputs /
power shortage, price escalation, accidents and natural calamities.
Dr. Janardhan G. Naik (2006) pointed out on the problems of NPAs to face the challenges
before the banking sector.
Chaitanya, V.K (2004) proposed a view that Non Performing Assets are one of the major
concerns for banks in India. NPAs reflect the performance of banks. A high level of NPAsuggests
high profitability of a large number of credit defaults that affect the profitability and net worth of
banks and also erodes the value of the assets . The NPAs growth involves the necessity of
provisions, which reduces the overall profits and shareholder value. The problem ofNPAs is not
only affecting the banks but also the whole economy. The researcher discusses the concept of
NPAs, its magnitude and major causes for an account becoming non performing . The projection
of NPA over the next three years in public sector banks.
K. Veerakumar (2012) presented a research paper on “ NPAs in priority Sector: A Threat
to Indian Scheduled Commercial banks. In this paper he analysed to gain in sights into the
position of NPAs in priority sector advances by scheduled commercial Banks(SCBs) i.c. public,
old and new private and foreign banks have been considered. To analyze ratio analysis, Average ,
percentage, olynomial Trend analysis co- efficient correlation and multiple linear regression
analysis and ‘t’ test have been used.
Gourav Vallabh , Anoop Bhatia and Saurabh MIshra (2004) in their article have made an
attempt to analyse the movement of non- performing assets of public and private banks along with
foreign banks operating in India during the year 1994-95 to 2003-04, impacted by macro-
economy factors and bank specific factors, using regression techniques and Anova model. The
observation was that NPA decrease with increased priority sector loans to total loans and public
sector loans were affected by macroeconomic variables at large . But this research didn’t take
interest rates , inflation rate in consideration.
Bercoff, Giovanniz and Grimardx (2002) in their study if Argentinean banks tried to
measure NPAs by using accelerated failure model encompassing the various bank related
parameters as well as macroeconomic variable. Some bank specific parameters in their study were
ratio of net worth , net assets , bank’s specific parameters in their study were ratio of net worth to
net assets, bank’s exposure to peso loans, and type of bank such as foreign , private or public.
Macroeconomic factors in this study were credit growth , reserve adequacy (import/
reserves),foreign interest rate and monetary expansion. The study established that variables such
as operating cost , exposure to peso loans, credit growth and foreign interest rate , had a negative
effect on NPAs. The macroeconomic variables such as money multiplier and reserve adequacy
had a positive impact on NPAs.
A.S. Ramasastri and N.K. Unnikrishna (2005) said that NPAs are largely fallout of banks’
activities with regard to advances, both at the management and implementation level, the credit
appraisal system, monitoring of end- usage of funds. It also depends on the over all economic
environment for recovery of defaulted loans.
Since the over all environment is more or less same for all banks, non-performing loans of
individual banks are mainly a result of management controls and systems put in place y them nd
recovery procedures. They concluded that higher than average credit expansion can further
strengthen banks if there is a good credit appraisal system, strict recovery procedures and over all
checks and balances by the top management.
Renu Jatana (2009) in her research paper title , “ Impact of NPAs on profitability of
banks” had analysed the impact of NPAs on profitability of public sector banks and private sector
banks with special reference and comparison of four banks like SBBJ, Oriental Bank of
commerce , ICICI bank and Bank of Rajasthan. And at last she conclude that among the four
selected banks ICICI is performing well in managing the NPA as regard their profitabilityin
comparison to other banks.
Mahipal Singh Yadav (2011) had analyzed in his research paper title , “ Impact of NPAs
on profitability and productivity of public sector banks in India”. The impact of NPAs on
profitability of PSBs at aggregate and sectoral level and also evaluate the impact of NPAs on
profitability with other variables and examine the impact of NPAs on efficiency and productivity
of the year 1994-95 to 2005-06. The simple linear regression function is used to analyse the
impact of NPAs on profitability of PSBs .Statistically result revealed that the present level of
NPAs in PSBs affects fifty persent profitability of the banks and its impact has gone to increase at
very large extent when it works with other strategic banking variables.
“ Performance of Indian Public Sector Banks with Special Referance to NPA” article is
written by Sandeep Sharma & Rajesh Sharma . In this paper researchers have made an attempt to
analyze how efficiently public sector banks have been managing their NPA. They have used least
square method as statistical tool for projection of trend. Paper shows that PSBs have enough
capital in hand to deal with future contingencies. Gross NPA and Net NPA as percentage of
advances are continuously declining which shows the efficiency of PSBs.
Dr. B. Chandra Mohan , “ NPA’s side effect and it’s curative Muntra” article is written. In
this article , researcher study the factors responsible for growth of NPAs from lenders and
borrowers perspective and also examine the impact of NPAs on profitability and other strategic
banking variables . In support of the objective of the research there is a primary research
questionnaire administration method in the field through stratified random sampling method
covering the four districts of Odisha through regional , geographical , economic, cultural , lingual
and settlement wise. In the conclusion , he said that the banks should not be loaded with twin
objectives of profitability and social welfare which are mutually incongruent. This calls for a
strong political will only then can banks be able to find satisfactory solution of the problem.
Ms. Kanika Goyal (2010) has written an article on “ Empirical Study of Non-Performing
Assets and Management of Indian Public sector Banks” . Under this article she analysed the trend
of gross NPAs , Net NPAs ,Asset quality of asset, health of diverse categories of loan assets,
sector wise NPA ect. The data has been analysed using percentage method and statistical tools
such as descriptive statistics, correlation and regression analysis , adjusted co- efficient of
determination, one way ANOVA and post loc – Iukey HSD procedure.
Kajal Chaudhary and Monika Sharma have written an article on “ Performance of Indian
Public Sector Banks and Private Sector Banks: A Comparative Study”. Under this article
researcher compare the performance of public and private banks in India, trend in NPA level and
also suggest various measures for NPA management. At last researcher concluded that an
efficient management information system should be developed. The bank staff involved in
sanctioning the advances should be trained about the proper documentation and gkarge of
securities and motivated to take measures in preventing advances turning into NPA . PSBs must
pay attention on their functioning to complete private banks.
A Report on “ Non- Performing Assets- Challenge to the Public Sector Banks” submitted
by Sarvajeet S. Patil. The main objective of the report is to know why NPAs are the great
challenge to public sector banks and also understand impact of NPAs and know what steps are
taken by banks to reduce the NPAs? The data is analysed and edited them and turned them in the
useful tabulation. Gross ratio analysis, Net ratio, provision ratio, problem asset ratio, capital
adequacy ratio, doubtful asset ratio, loss asset ratio are used. At last report concluded that the nets
have in creased very drastically after 2001,in 1997 the gross NPAs of the Indian banking sector
was 47,300 crore where as in 2001 the figure was 63,883 and which increased at faster rate in
2003 with 94,905 crore. The PSbs involve it nearly 50% of share in the NPA.
Prof.G.V.Bhavani Prasad and D.Veena in their research paper “NPA Indian Banking
Sector Trend and issue’’ has evaluated the operational performance of SCBs in India since 2000,
NPAs Trends and issues. The study is diagnostic, expioratory in nature and makes use of
secondary data. The statistical tools like averages, percentages, mean and standard deviations are
used to analyze the data. And concluded that new private sector banks and foreign banks started
with clear state abd latest technologies, the public sector banks and old private sector bamks had
to overcome the old private sector banks had to overcome the old system and employee resistance
and introduce the new systems and processes nad norms to catch up with the competition.
An article on ‘’ Non performing assets in India’’ is writer by anupam jain, Vinita and
swati jain. This paper deals with the concept of non performing asset and non performing assets in
Indian commercials Banks. In this paper detail of Non performing assets of total banking sector,
distribution of commercial bank credit to priority sector and small scale industries has been listed
in the table format. Eight years data of total banking sector are considered. This is done foe the
total advances and also for advances to the SSI Sector. In particular check for the significance of
NPA as a determinant of efficiency.
An article on “ Analysis of NPA in priority sector lending : A comparative study between

public sector banks and private sector banks of India’’ is written by Dr. Suresh Patidar. This paper
examines the NPA in priority sector lending and a comparative study is done between public and
private banks. The study analyzed priority sector to find out the percentage share of NPA of all
banks and to find out the significant impact of priority sector lending on the total NPA of banks
using tools like regression analisis and ratio analysis. The results showed the significant impact of
priority sector lending on total NPA of public sector banks whereas in case of private sector
Banks, there was no significant impact of priority sector lending on total NPA of Banks.
Nagananthini T (2007) attempted to “Profitability, efficiency and NPA – A critical

analysis with reference to the SBI and its Assocoates.’’ To study the trends in profitability,
efficiency and NPA of SBI and its associate banks considering interest, working funds, interest
expense, gross profits, not profits, spread, etc. That the profitability is on an increasing trend. “
Per employee” and “ per branch” indicators were worked out and they showed that the efficiency
of the firms has increased all the banks during the study period and declined in gross and net
NPA.
The Study made by Dr.Falguni c. Shastri who published a book in “ Restructuring Indian
Banks”. She has studied concept of NPAs , Reasons for NPAs and Impact of NPAs . In this
book ,she has used 10 years data of Public sector banks in India. For the analyses of the data she
used different ratios like gross NPA ratio, net NPA ratio, trend in net NPAs and sector wise NPAs
ect. At last she gave suggestions to overcome this problems.
The study made by Prof. E. Gordon and Dr. K. Natarajan who publishe a book on , “
Banking Theory ,Law and Practice” in Himalaya Publishing House . In this book they studied
Magnitude of NPA, factors contributing to NPAs like internal factors , external factors and other
factors. Early Warning Signals like financial, operational , banking, managerial and External
signals were discussed . Management of NPAs by adopting some techniques are discussed in this
book.
Dr. P.K. Srivastava had written a book on “Basics of Banking & Finance which is
published in Himalaya Publishing House. In this book author had discussed Norms for treating
different advances as non-performing, Impact of NPAs , Assets classification , Some important
aspect on provisioning of NPAs , Guidelines for classification of Assets , NPA- recovery
measures , Sector –wise NPAs of public sector banks , Reasons for NPAs , RBI tightens norms
for Bank’s Non- performing lease assets etc.
A project report on “ Non performing Assets- Challenge to the public sector Banks” submitted by
Sachin Nandha. The objectives of this report were to understand what is NPA , what are the
reasons for NPAs ,why NPAs are the great challenge to the PSBs ,impacts of NPAs on the
operations of the PSBs ,what steps are being taken by PSBs to reduce NPAs and also evaluate the
comparative ratios of the PSBs with concerned to the NPAs. Ratios like gross NPA ratio,net NPA
ratio , provision ratio, problem asset ratio, capital adequacy ratio, sub-standard asset ratio,
doubtful asset ratio, loss asset ratio, etc. were used for analyses of the data. After analysed the
data, researcher came to know that NPAs have increased very drastically after 2001. The banks
must find out the measures to reduce the evolving problem of the NPAs.
A project on “ Comparative analysis on Non performing Assets of Public and Private

Sector Banks” submitted by Anindya Sankar Kundu. In this project , researcher evaluated NPAs
in different banks, studied past trend of NPAs , calculated the weighted of NPA in risk
management in banking and analysed financial performance of banks at different level of NPA.
After analysed the data by using tabulation of data, there are huge differences between private and
public sector bank NPA.
A project report on , “ Comparative Analysis of NPA of Public Sector Banks, Private

Sector Banks and Foreign Banks” submitted by Nikhil Prasad . Under this project , researcher
studied concept of NPAs, NPA standard of RBI, reasons for and impact of NPAs, Evaluated the
efficiency in management NPAs of different types of banks using NPA ratios and comparing
NPA with profits.
A report on “ Management of NPAs in Banking Industry” submitted by Saurabh

Dadhichi . In this report researcher evaluated NPAs in banks, past trends of NPAs , analyzed
financial performance of banks at different level of NPAs ,evaluated profitability positions of
banks and also evaluated NPA level in different economic situation. Gross NPAs reflect the
quality of the loans made by banks , net NPA shows the actual burden of banks.
CHAPTER III
COMPANY & INDUSTRY PROFILE
INDUSTRY PROFILE:
Introduction
As per the Reserve Bank of India (RBI), India’s banking sector is sufficiently capitalised and
well-regulated. The financial and economic conditions in the country are far superior to any
other country in the world. Credit, market and liquidity risk studies suggest that Indian banks are
generally resilient and have withstood the global downturn well.
Indian banking industry has recently witnessed the roll out of innovative banking models like
payments and small finance banks. RBI’s new measures may go a long way in helping the
restructuring of the domestic banking industry.
The digital payments system in India has evolved the most among 25 countries with India’s
Immediate Payment Service (IMPS) being the only system at level five in the Faster Payments
Innovation Index (FPII). *
Market Size
The Indian banking system consists of 12 public sector banks, 22 private sector banks, 46 foreign
banks, 56 regional rural banks, 1485 urban cooperative banks and 96,000 rural cooperative banks
in addition to cooperative credit institutions. As of September 2023, the total number of ATMs in
India increased to 210,049 and is further expected to increase to 407,000 by 2022.
Asset of public sector banks stood at Rs. 107.83 lakh crore (US$ 1.52 trillion) in FY20.
During FY16-FY20, bank credit grew at a CAGR of 3.57%. As of FY20, total credit extended
surged to US$ 1,698.97 billion.
During FY16-FY20, deposits grew at a CAGR of 13.93% and reached US$ 1.93 trillion by
FY20. Credit to non-food industries stood at Rs. 103.46 trillion (US$ 1.40 trillion) as of
November 20, 2023.
Investments/Developments
Key investments and developments in India’s banking industry include:
 On November 6, 2023, WhatsApp started UPI payments service in India on receiving the
National Payments Corporation of India (NPCI) approval to ‘Go Live’ on UPI in a
graded manner.
 In October 2023, ICICI Bank and Apollo Hospitals partnered to launch the ‘HealthyLife
Programme’, a holistic healthcare solution that makes healthy living accessible and
affordable on Apollo’s digital platform.
 In 2022, banking and financial services witnessed 32 M&A (merger and acquisition)
activities worth US$ 1.72 billion.
 In March 2023, State Bank of India (SBI), India’s largest lender, raised US$ 100 million
in green bonds through private placement.
 In February 2023, the Cabinet Committee on Economic Affairs gave its approval for
continuation of the process of recapitalization of Regional Rural Banks (RRBs) by
providing minimum regulatory capital to RRBs for another year beyond 2022-20 - till
2023-21 to those RRBs which are unable to maintain minimum Capital to Risk weighted
Assets Ratio (CRAR) of 9% as per the regulatory norms prescribed by RBI.
 In October 2022, Department of Post launched the mobile banking facility for all post
office savings account holders of CBS (core banking solutions) post office.
 Deposits under Pradhan Mantri Jan Dhan Yojana (PMJDY) stood at Rs. 1.06 lakh crore
(US$ 15.17 billion.
 In October 2022, Government e-Marketplace (GeM) signed a memorandum of
understanding (MoU) with Union Bank of India to facilitate a cashless, paperless and
transparent payment system for an array of services.
 In August 2022, the Government announced major mergers of public sector banks, which
included United Bank of India and Oriental Bank of Commerce to be merged with Punjab
National Bank, Allahabad Bank to be amalgamated with Indian Bank and Andhra Bank
and Corporation Bank to be consolidated with Union Bank of India.
 The NPAs (Non-Performing Assets) of commercial banks recorded a recovery of Rs.
400,000 crore (US$ 57.23 billion) in the last four years including record recovery of Rs.
156,746 crore (US$ 22.42 billion) in FY19.
 Allahabad Bank’s board approved the merger with Indian bank for the consolidation of
10 state-run banks into the large-scale lenders.
 The total equity funding of microfinance sector grew at 42 y-o-y to Rs. 14,206 crore
(US$ 2.03 billion) in 2021-19.
Government Initiatives
 As per Union Budget 2022-20, the Government proposed fully automated GST refund
module and an electronic invoice system that will eliminate the need for a separate e-way
bill.
 Under the Budget 2022-20, Government proposed Rs. 70,000 crore (US$ 10.2 billion) to
the public sector banks.
 Government smoothly carried out consolidation, reducing the number of Public Sector
Banks by eight.
 As of September 2021, the Government of India made Pradhan Mantri Jan Dhan Yojana
(PMJDY) scheme an open-ended scheme and added more incentives.
 The Government of India planned to inject Rs. 42,000 crore (US$ 5.99 billion) in public
sector banks by March.
Achievements
Following are the achievements of the Government:
 In November 2023, Unified Payments Interface (UPI) recorded 2.21 billion transactions
worth Rs. 3.90 lakh crore (US$ 53.06 billion).
 According to the RBI, India’s foreign exchange reserve reached US$ 574.82 billion as of
November 27, 2023.
 To improve infrastructure in villages, 204,000 point of sale (PoS) terminals have been
sanctioned from the Financial Inclusion Fund by National Bank for Agriculture & Rural
Development (NABARD).
Road Ahead
Enhanced spending on infrastructure, speedy implementation of projects and continuation of
reforms are expected to provide further impetus to growth in the banking sector. All these factors
suggest that India’s banking sector is poised for a robust growth as rapidly growing businesses
will turn to banks for their credit needs.
Also, the advancement in technology has brought mobile and internet banking services to the
fore. The banking sector is laying greater emphasis on providing improved services to their
clients and upgrading their technology infrastructure to enhance customer’s overall experience as
well as give banks a competitive edge.
India’s digital lending stood at US$ 75 billion in FY18 and is estimated to reach US$ 1 trillion
by FY23 driven by the five-fold increase in the digital disbursements.
The Indian banking system consists of 12 public sector banks, 22 private sector banks, 44 foreign
banks, 56 regional rural banks, 1,485 urban cooperative banks and 96,000 rural cooperative
banks in addition to cooperative credit institutions. As of August 2023, total number of ATMs in
India increased to 209,110 and is expected to reach 407,000 by 2022.
According to Reserve Bank of India (RBI), India’s foreign exchange reserve reached US$
560.53 billion as on October 23, 2023. According to the Reserve Bank of India (RBI), bank
credit and deposits stood at Rs. 103.43 lakh crore (US$ 1.39 trillion) and Rs. 143.02 lakh crore
(US$ 1.92 trillion), respectively, in the fortnight ending October 9, 2023.
Credit to non-food industries stood at Rs. 102.80 lakh crore (US$ 1.38 trillion) as of October 9,
2023.
Asset of public sector banks stood at Rs. 107.83 lakh crore (US$ 1.52 trillion) in FY20.
Total assets across the banking sector (including public, private sector and foreign banks)
increased to US$ 2.52 trillion in FY20.
Indian banks are increasingly focusing on adopting integrated approach to risk management. The
NPAs (Non-Performing Assets) of commercial banks has recorded a recovery of Rs. 400,000
crore (US$ 57.23 billion) in FY19, which is highest in the last four years.
As per Union Budget 2022-20, investment-driven growth required access to low cost capital, and
this would require investment of Rs. 20 lakh crore (US$ 286.16 billion) every year.
RBI has decided to set up Public Credit Registry (PCR), an extensive database of credit
information, accessible to all stakeholders. The Insolvency and Bankruptcy Code (Amendment)
Ordinance, 2020 Bill has been passed and is expected to strengthen the banking sector. Total
equity funding of microfinance sector grew 42% y-o-y to Rs. 14,206 crore (US$ 2.03 billion) in
2021-19.
Bank accounts opened under the Government’s flagship financial inclusion drive Pradhan Mantri
Jan Dhan Yojana (PMJDY) reached 40.05 crore and deposits in Jan Dhan bank accounts stood at
more than Rs. 1.30 lakh crore (US$ 18.44 billion).
Rising income is expected to enhance the need for banking services in rural areas, and therefore,
drive the growth of the sector.
The digital payments revolution will trigger massive changes in the way credit is disbursed in
India. Debit cards have radically replaced credit cards as the preferred payment mode in India
after demonetisation. Payments on Unified Payments Interface (UPI) hit an all-time high of 1.49
billion in terms of volume with transactions worth nearly Rs. 2.90 lakh crore (US$ 41.22 billion)
in July 2023.
CHAPTER IV
NPA ITS IMPACT AND MAGNITUDE:

MEANING OF NPA:
An asset is classified as non- performing asset (NPA) if dues in the form of principal and interest
are not paid by the borrower for a period of 180 days. How ever with effect from March 2016,
default status would be given to a borrower if dues are not paid for 90 days. If any advance or
credit facilities granted by bank to a borrower becomes non-performing, then the bank will have
to treat all the advances / credit facilities granted to that borrower as non-performing without
having any regard to the fact that there may still exit certain advances / credit facilities having
performing status.
A ‘non-performing asset’ (NPA) was defined as a credit facility in respect of which the interest
and / or installment of installment of principal has remained ‘Past Due’ for a specified period of
time.
An amount due under any credit facility is treated as "past due" when it has not been paid within
30 days from the due date. Due to the improvement in the payment and settlement systems,
recovery climate, up gradation of technology in the banking system, etc., it was decided to
dispense with 'past due' concept, with effect from March 31, 2001. Accordingly, as from that
date, a Non performing asset (NPA) shell be an advance where
i. Interest and /or installment of principal remain overdue for a period of more than 180
days in respect of a Term Loan,
ii. The account remains 'out of order' for a period of more than 180 days, in respect of an
overdraft/ cash Credit(OD/CC),
iii. The bill remains overdue for a period of more than 180 days in the case of bills purchased
and discounted,
iv. Interest and/ or installment of principal remains overdue for two harvest seasons but for a
period not exceeding two half years in the case of an advance granted for agricultural
purpose, and
v. Any amount to be received remains overdue for a period of more than 180 days in respect
of other accounts.
’90 days’ overdue norm’
With a view to moving towards international best practices and to ensure greater transparency, it
has been decided to adopt the '90 days overdue' norm for identification of NPAs, form the year
ending March 31, 2016. Accordingly, with effect form March 31, 2016, a non-performing asset
(NPA) shell be a loan or an advance where;
i. Interest and /or installment of principal remain overdue for a period of more than 90 days
in respect of a Term Loan,
ii. The account remains 'out of order' for a period of more than 90 days, in respect of an
overdraft/ cash Credit(OD/CC),
iii. The bill remains overdue for a period of more than 90 days in the case of bills purchased
and discounted,
iv. Interest and/ or installment of principal remains overdue for two harvest seasons but for a
period not exceeding two half years in the case of an advance granted for agricultural
purpose, and
v. Any amount to be received remains overdue for a period of more than 90 days in respect
of other accounts.
As a facilitating measure for smooth transition to 90 days norm, bank has been advised to move
over to charging of interest at monthly rests, by April 1, 2011. However, the date of classification
of an advance as NPA should not be changed on account of charging of interest at monthly rests.
Banks should, therefore, continue to classify an account as NPA only if the interest charged
during any quarter is not serviced fully with 180 days from the end of the quarter with effect
from April 1, 2011 and 90 days from the end of the quarter with effect from March 31, 2016.
‘Out of Order’ Status
An account should be treated as ‘Out of Order’ if the outstanding balance remains continuously
in excess of the sanctioned limit / drawing power. In cases where the outstanding balance in the
principal operating account is less than the sanctioned limit / drawing power, but there are no
credits continuously for 180 days (to be reduced to 90 days, with effect from March 31, 2016) as
on the date of Balance Sheet or credits are not enough to cover the interest debited the same
period, these accounts should be treated as ‘out of order’.
‘Overdue’
Any amount due to the bank under any credit facility is ‘overdue’ if it is not paid on the due date
fixed by the bank.
Asset Type Percentage of Provision
Sub standard (age up to 18 months) 11%
Doubtful 1 (age up to 2.5 years) 20%
Doubtful 2 (age 4.5 years) 30%
Doubtful 3 (age above 4.5 years) 50%
Loss Asset 110%
INCOME RECOGNITION-POLICY:
The policy of income recognition has to be objective and based on the record of recovery.
Internationally income from non-performing assets (NPA) is not recognized on accrual basis but
is booked as income only when it is actually received. Therefore, the banks should not charge
and take to income account interest on any NPA.
However, interest on advances against term deposits, NSCs, VIPs, KVPs, and Life policies may
be taken to income account on the due date, provided adequate margin is available in the
accounts.
Fees and commissions earned by the banks as a result of re-negotiations or rescheduling of
outstanding debts should be recognized on an accrual basis over the period of time covered by
the re-negotiated or rescheduled extension of credit.
If Government guaranteed advances become NPA, the interest on such advances should not to be
taken to income account unless the interest has been realized.
REVERSAL OF INCOME:
If any advance, including bills purchased and discounted, becomes NPA as at the close of any
year, interest accrued and credited to income account in the corresponding previous year, should
be reversed or provided for if the same is not realized. This will apply to Government guaranteed
accounts also.
In respect of NPAs, fees, commission and similar income that have accrued should cease to
accrue in the current period and should be reversed or provided for with respect to past periods,
if uncollected.
THE CONCEPT OF GROSS NPA:

Income recognition is not possible once an account becomes NPA. Interest accrued on non
performing loan accounts is debited to the respective account and credited to the interest
suspense account instead of the profit and loss account. Usually no debits are permitted in non
performing asset expect unavoidable expenditure like litigation expenses, insurance etc. Hence
the balance outstanding in an NPA account includes:
1. Balance as on date of becoming an NPA.
2. Interest accrued but not realized.
On balance sheet date banks make provisions for loan losses. This provision is calculated not on
the balance outstanding but on the net balance, balance net of the amount kept in the interest
suspense account. This book balance of the net of the interest suspense account is known as
Gross NPA.
But in cases where guarantee claim is received from credit guarantee corporations like ECGC,
before making the provision for loan losses, such claim received is also netted from the gross
NPA. The terminology net NPA indicates the balance in interest suspense account.
For evaluation RBI and other rating agencies rely on purpose usually the net NPA balance.
Thus Gross NPA means, balance outstanding minus balance in interest suspense account.
Net NPA means: Gross NPA minus balance claim received amount and provision outstanding in
that account.
IMPACT OF NPA:
At the Macro level, NPAs have chocked off the supply line of Credit of the potential lenders
thereby having a deleterious effect on capital formation and arresting the economic activity in the
country.
At the Micro level, unsustainable level of NPAs has eroded current profits of banks and FIs.
They have led to reduction of interest income and increase in provisions and have restricted and
recycling of funds leading to various Asset Liability mismatches. Besides this, it has led to
erosion in their capital base and reduction in competitiveness.
The problem of NPA is not a matter of concern to banks and FIs alone. It is the matter of grave
concern to the country and any bottleneck in the smooth flow of credit is bound to create adverse
repercussions in the economy. The mounting menace of NPAs has raised the cost of credit, made
Indian business man uncompetitive as compared to their counterparts in other countries.
It has made banks more adverse to risks and squeezed genuine Small and Medium Enterprises
(SMEs) from accessing competitive credit and has throttled their enterprising spirits as well, to a
great extent.
Due to their crippling effect on the operation of the banks, Asset quality has been considered as
one of the most important parameters in the measurement of bank’s performance under the
CAMELS Supervisory Rating System of RBI.
CHAPTER - V
DATA ANALYSIS & INTERPRETATION
DATA ANALYSIS & INTERPRETATION
GROSS NPA RATIO
Gross NPA is sum of all the loan assets that are classified as NPA as per the RBI
guidelines as on the balance sheet data. Gross NPA ratio is the ratio of gross NPA to gross
advantages of the bank. When it is to be expressed in percentage, it is known as gross NPA
percentage.
Gross NPA Ratio = Gross NPAs x 100

Gross advances
2020-2021 2021-2022 2022-2023
(i) BANK
5.65% 5.23% 5.75%
(ii) ICICI .
5.16% 4.16% 3.99%
(iii) PRIME
3.99%
2022-2023
5.75%
4.16%
2021-2022 1 PRIME
5.23%
1 ICICI .
5.16%
2020-2021
5.65%
0.00% 2.00% 4.00% 6.00% 8.00%

Interpretation:
Above table and chart indicates the quality of credit portfolio of the banks. High gross
NPA ration indicates low quality credit portfolio of the bank and vice-versa. We can see from the
above two banks gross NPA ratio that is ICICI has stable at 5 to 6% and prime bank ratio has
increasing from the last 3 year. It indicates that the quality of credit portfolio of ICICI Bank is
lower.
2. NET NPA RATIO :

The net NPA percentage is the ration of NPA to net advances, whereas the net NPA can
be simply worked out as the gross NPA minus provisions held for NPA account, and net
advances can be simply worked out as the gross advances minus provisions held for the NPA
account.
Net NPA Ratio = Net NPA x 100

Net Advances
Net NPA Ratio = Net NPA - provisions x 100
Gross advances - provisions
2020-2021 2021-2022 2022-2023
BANK
3.58% 3.67% 4%
ICICI .
4.99% 4.33% 3.57%
PRIME
3.57%
2022-2023
4.00%
4.33%
2021-2022 2 PRIME
3.67%
2 ICICI .
4.99%
2020-2021
3.58%
0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00%
Interpretation:
Above table and charts indicates the degree of risk in the portfolio of the bank. High NPA
ratio indicates high quantity of the risky assets in the bank for which no provision was made.
Above table of two banks are indicates that the net NPA ration of the ICICI bank was higher
than prime bank. It saws that ICICI bank consist of risky assets on which no provision has been
made. It will become dangerous in the long-term solvency.
3. PROBLEM ASSET RATIO:

It is the ratio of gross NPA to total assets of the bank.
Problem asset Ratio = Gross NPAs x 100

Total asset
2020-2021 2021-2022 2022-2023
BANK
1.74% 1.90% 1.8%
ICICI .
1.70% 1.95% 2.07%
PRIME
2.07%
2022-2023
1.80%
1.95%
2021-2022 3 PRIME
1.90%
3 ICICI .
1.70%
2020-2021
1.74%
0.00% 0.50% 1.00% 1.50% 2.00% 2.50%
Interpretation:
It has been direct bearing on return of assets as well as liquidity risk management of the
bank. High problem assets ratio means high liquid. Above table shows that ICICI bank becomes
successful in achieving lower problem asset ratio whereas prime bank have comparatively higher
ratio indicates.
4. DEPOSITORS SAFETY RATIO:

1) It is also known as standard asset to total outside liquidity ratio.
Here standard asset means total standard loans assets and investments.
Outside liquidities are total liquidities minus capital and reserves.
Depositors safety Ratio = Total Standard Asset x 100

Total Outside liability
2020-2021 2021-2022 2022-2023

BANK
33.22% 39.43% 33.48%
ICICI .
54.90% 60.32% 56.73%
PRIME
56.73%
2022-2023
33.48%
60.32%
2021-2022 PRIME
39.43%
ICICI .
54.90%
2020-2021
33.22%
0.00% 20.00% 40.00% 60.00% 80.00%
Interpretation:
It indicates the degree of safety of depositor’s money. The above table of two bank saws
the ratio of depositor’s safety ratio is lower than compare to prime bank in each year. ICICI Bank
should improve in order to win the confidence of depositors.
5. SHAREHOLDERS RISK RATIO :

It is the ratio of NET NPA to total of capital and reserve of the bank.
Shareholder’s Risk Ratio = Net NPAs x 100
Total Capital & Surplus
2020-2021 2021-2022 2022-2023
BANK
16.78% 21.99% 20.10%
ICICI .
22.92% 22.41% 20.55%
PRIME
20.55%
2022-2023
20.10%
22.41%
PRIME
2021-2022
21.99%
ICICI .
22.92%
2020-2021
16.78%
0.00% 5.00% 10.00% 15.00% 20.00% 25.00%
Interpretation:
It indicates the degree of risk associated with the shareholders investment. High ratio
means high risk to the shareholder. Above table of two bank indicates the prime bank is able to
reduce the shareholder’s risk in the last three years while in case of ICICI correlated-operative
bank’s ratio is moderate but increasing which may leads to divert their funds to other bank which
has lower risk. Bank should keep constant eye on this ratio to maintain and attract the funds of
shareholders.
6. PROVISION RATIO:
It is the ratio of total provision held in respect to gross NPA of the bank.
Provision ratio = Total Provision x 100
Gross NPAs
2020-2021 2021-2022 2022-2023
BANK
38% 31% 31.67%
ICICI .
3.55% 6.45% 10.84%
PRIME
11%
2022-2023
32%
6% PRIME
2021-2022
31% ICICI .
4%
2020-2021
38%
0% 5% 10% 15% 20% 25% 30% 35% 40%
Interpretation:
It indicates the degree of safety measures adapted by the banks. It has direct bearing on
profitability, dividend and safety of the shareholders fund. If the provision ratio is less, it
indicates that the bank has made under provision. The above table indicates the provision ratio of
two bank’s which saws ICICI bank has more than 30% of its gross NPA from last three year
which saws over provision of NPA which indicates that bank believe in top keep higher safety
for profitability, dividend and safety of shareholder’s funds. The prime bank has not more
provision ratio so the bank has to improve this ratio.
7. INTEREST SPREAD RATIO:
This is the excess of total interest earn over the total interest expanded.
( Interest earned during the year-
Interest Spread ratio = Interest paid during the year x 100
Standard Assets
2020-2021 2021-2022 2022-2023
BANK
4.61% 4.77% 5.60%
ICICI .
12.53% 11.43% 10.82%
PRIME
10.82%
2022-2023
5.60%
11.43%
2021-2022 PRIME
4.77%
ICICI .
12.53%
2020-2021
4.61%
Interpretation:
This ratio indicates the efficiency of the bank in managing and marching the interest
expenditure and interest income effectively. Interest spread is critical to a bank’s success as it
exerts a strong influence on its bottom line. The above table shows that ICICI bank is leading in
interest spread ratio compare to prime bank but we can also see that from last three year its
interest spread ratio increasing which indicates that banks earning asset is increasing and non-
performing account is rapidly converting in the performing account.
8. SUBSTANDARD ASSETS
It is the ratio of total substandard assets to gross NPA of the bank.
Substandard assets = Total substandard Assets x 100

Gross NPAs
2020-2021 2021-2022 2022-2023

BANK
35.62% 32.97% 38.99%
ICICI .
72.42% 72.41% 70.27%
PRIME
70.27%
2022-2023
38.99%
72.41%
2021-2022 PRIME
32.97%
ICICI .
72.42%
2020-2021
35.62%
0.00% 20.00% 40.00% 60.00% 80.00%
Interpretation:
It indicates the scope of up gradation / improvement in NPA. Above table of different
ratio of substandard shows that prime has highest ratio which means in all NPA’ substandard
ratio has major proportion which indicates that there is the highest scope for advance up
gradation on improvement because it will be very easy to recover the loan as minimum duration
of defaults. The ratio of ICICI has not much scope of loan gradation or improvement as their
ratio is very low.
9. DOUBTFUL ASSET RATIO:

It is the ratio of total doubtful assets to gross NPA of the bank.
Doubtful Asset = Total doubtful Assets x 100

Gross NPAs
2020-2021 2021-2022 2022-2023

BANK
51.41% 56.10% 49.19%
ICICI .
27.58% 27.59% 29.73%
PRIME
29.73%
2022-2023
49.19%
27.59%
2021-2022 PRIME
56.10%
ICICI .
27.58%
2020-2021
51.41%
0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00%
Interpretation:
It indicates scope of compromise of up NPA’s reduction. Above table shows the ICICI
Bank ratio is considerably decreasing for the last three years, which implies that it has to go for
compromise as its substandard assets consist highest portion in the total NPA’s. While in prime
bank it remains very stable.
CHAPTER VI
FINDINGS AND SUGGESTIONS
&
CONCLUSION
FINDIGS:
1) From the gross NPA Ratio of the bank in 2016 is 5.75%. Which suddenly decreases in
2020 i.e. 5.23% by 0.52%. It is good for the bank But in increases in 2021 i.e. 5.65% by
0.42%, which is bad for the bank.
2) Gross NPA Ratio i.e. ICICI has stable 5 to 6 % and Prime bank ratio has increases from
the last three years. So quality of credit portfolio of ICICI bank is lower.
3) Net NPA Ratio of The ICICI Bank was higher than Prime Bank. It shows that ICICI
Bank consist of risky assets. It will become dangerous in the long term solvency.
4) Depositor’s Safety ratio is lower than compare to prime bank in each year. So ICICI
bank should improve it.
5) The prime bank is reduce the share holder’s risk in last three years while in case of ICICI
Bank Ratio is moderate but increasing, So bank is divert their funds to other banks.
6) Provision ratio find that total provision divided gross NPAs of the bank in 2016 is
31.67% and it decreasing in 2020 i.e. 31% by 0.67% and it also increases in 2021 i.e.
38% by 7% increases. So we can say that firm keeps higher safety to compare the prime
bank.
7) Substandard Asset Ratio find that total substandard asset upon gross NPAs of the bank in
2016 is 38.99% it decreases in 2020 i.e. 32.97% by 5.02% decrease and also increase in
2021 i.e. 35.62% by increase 2.5% in other side prime bank ratio is increases its ratio in
each year.
8) Substandard ratio of ICICI bank has not much scope of loan gradation or improvement
as their ratio is very low.
SUGGESTIONS
 Identifying reasons for turning of each account of a branch into NPA is the most
important factor for upgrading the asset quality, as that would help initiate suitable steps
to upgrade the accounts.
 The bank must focus on recovery form those borrows who have the capacity to repay but
are not repaying initiation of coercive action a few such borrows may help.
 The recovery machinery of the bank has to be streamlined, targets should be fixed for
field officers / supervisors not only for recovery in general but also in terms of upgrading
number of existing NPAs.
 In the bank there should be a proper manpower planning.

 Bank should try to establish the branches in competitive market, so it will increase their
profit.
 Now a day more competition increase in the market so bank should give more facility to
its customers like ATM facilities by which it can attract more and more customers.
 Bank has required increasing the cash and bank balances by reducing the unnecessary
expenses for future plan.
 Increase the advances, which is beneficial for the bank to meet cash requirements from
the out side.
 Bank should increase the deposits through the advertisement & dividend payment etc.
 In last, I suggest that bank should update its website for better marketing so customer see
the bank's position progress.
CONCLUSION:
NPA Act is a fine, comprehensive and an extra-ordinary piece of legislation. It is also a

reassuring sign of Government’s commitment to reforms. The Act empowers banks to change or
take over the management or even take possession of secured assets of the borrowers and sell or
lease out the assets. This is for the first time that the banks can take over the immovable assets of
the defaulting borrowers without the intervention of the court. They can claim future receivables
and supersede the Board of Directors of the defaulting corporates. No court, other than Debt
Recovery Tribunal, can entertain any appeal against the action taken by Banks and Financial
Institutions under this act.
When this Act was enacted, it was seen as a panacea to the entire problem of NPAs. The banks
were euphoric and they took action swiftly. Notices were flashed to defaulters. Cash recovery
became a reality. Banks have seized assets of number of borrowers.
The problem of bad loans could be due to bad intensions or bad financial management or
otherwise and also due to several external reasons. The main concern is the prevention of further
slippage of performing accounts into the non performing category in the first instance.
Preventing fresh flow of NPAs is as important as the recovery of the existing heavy stock of
NPAs.
There can not be any quick fix or one short solution to solve the NPA problem. Once recovery
reforms are carried out, market for stressed assets are developed, this Securitization Act will
surely help banks in reduction of NPAs to a great extent. Passing of the law cannot be considered
to be synonymous with addressing the underlying problem our legal system has so far failed to
enforce contractual obligations and this is hardly likely to cure this fundamental ill, unless more
legal reforms are made and strictly enforced in true letter and spirit. Banks should also be
empowered to proceed against the personal assets of the directors of the defaulting units /
companies / groups etc. to enable the act to be more effective and proactive as well.
Exchange of credit information among banks would be of immense help to avoid possible NPAs.
The banking system ought to be so geared that a defaulter at one place is recognized as a
defaulter by the system. The system will have to provide a mechanism to ensure that the
unscrupulous borrowers are unable to play one bank against the other.
BIBLIOGRAPHY
a. Analysis of NPAs of commercial banks – Analyst July 2000.
b. V. Venugopal – ‘Prudential norms for banks and NBFC’s –
Revised 5th Edition.
c. Annual reports of ICICI Bank Limited.
d. www.rbi.com
e. www.ICICI.com
f. www.research.com (Personal website of R. Kannan)
g. Report on trend and progress of banking in India 2001-2002 – RBI
ANNEXURE& QUESTIONNAIRE

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PROJECT REPORT

A STUDY ON NON PERFORMANCE ASSETS

Under the Guidance of

School of Management studies

CHAPTER - II REVIEW OF LITERATURE

Definition of 'Non Performing Assets'

2) Doubtful assets: An asset would be classified as doubtful if it has remained in the

Article I. NON PERFORMING ASSETS ORDINANCE: TO EMPOWER RBI

1. To analyze the NPA level of HDFC bank Limited.

Exploratory research is investigation of relationships among variables without

Data Collection Method

Research Measuring Tool:

Isaac k. Otchere (2005) conducted a study on the performance of privatized banks in

. A comparison of the performance of privatized banks in developed and developing countries

An article on “ Analysis of NPA in priority sector lending : A comparative study between

Nagananthini T (2007) attempted to “Profitability, efficiency and NPA – A critical

A project on “ Comparative analysis on Non performing Assets of Public and Private

A project report on , “ Comparative Analysis of NPA of Public Sector Banks, Private

A report on “ Management of NPAs in Banking Industry” submitted by Saurabh

NPA ITS IMPACT AND MAGNITUDE:

THE CONCEPT OF GROSS NPA:

GROSS NPA RATIO

Gross NPA Ratio = Gross NPAs x 100

0.00% 2.00% 4.00% 6.00% 8.00%

2. NET NPA RATIO :

Net NPA Ratio = Net NPA x 100

0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00%

3. PROBLEM ASSET RATIO:

Problem asset Ratio = Gross NPAs x 100

0.00% 0.50% 1.00% 1.50% 2.00% 2.50%

4. DEPOSITORS SAFETY RATIO:

Depositors safety Ratio = Total Standard Asset x 100

2020-2021 2021-2022 2022-2023

0.00% 20.00% 40.00% 60.00% 80.00%

5. SHAREHOLDERS RISK RATIO :

0.00% 5.00% 10.00% 15.00% 20.00% 25.00%

0% 5% 10% 15% 20% 25% 30% 35% 40%

Substandard assets = Total substandard Assets x 100

2020-2021 2021-2022 2022-2023

0.00% 20.00% 40.00% 60.00% 80.00%

9. DOUBTFUL ASSET RATIO:

Doubtful Asset = Total doubtful Assets x 100

2020-2021 2021-2022 2022-2023

0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00%

 In the bank there should be a proper manpower planning.

NPA Act is a fine, comprehensive and an extra-ordinary piece of legislation. It is also a

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