A

STUDY ON
NON-PERFORMING ASSESTS MANAGEMENT SYSTEM
FOLLOWED BY PUBLIC SECTOR BANKS IN INDIA

Dissertation Report

Submitted to
AMITY GLOBAL BUSINESS SCHOOL,
Bhubaneswar.

Under the Supervision of Report

Submitted By:
Dr. Birajit Mohanty Biswajit Nayak.
MBA-4th
sem(2008-10)
Rool No-
A30401908026

AMITY
HIG-15, BDA, Jaydev Vihar,

Bhubaneswar-751013

ORISSA.
 DECLARATION
I here by declare that this project report “NON-PERFORMING ASSESTS
MANAGEMENT FOLLOWED BY PUBLIC SECTOR BANKS IN INDIA” submitted to the “
Amity business school, Bhubaneswar” in partial fulfillment for the award of degree of MASTER
OF BUSINESS ADMINISTRATION, is a bonafide work done by me and it was not submitted to
any other university or institution previously.

PLACE:- NAME:-Biswajit Nayak

DATE:- REG NO:- A3O4O1908026

 ACKNOWLEDGMENT
The report entitled “NON-PERFORMING ASSESTS MANAGEMENT FOLLOWED BY
PUBLIC SECTOR BANKS IN INDIA” represents the guidance & co-operation of a few
individuals, to whom I would like to express my deep sense of gratitude.

I express my sincere and heartiest gratitude to my internal guide, Mr.Birjeet Mohanty,

faculty member of Amity for their valuable suggestion and guidance, which have given a
concrete shape to this report.

.
 Signature of the student

CERTIFICATE FROM THE GUIDE

I certify that the project report entitled “NON-PERFORMING ASSESTS

MANAGEMENT FOLLOWED BY PUBLIC SECTOR BANK IN INDIA” , is a bonafied work
done by Biswajit Nayak, bearing Regd. No. A30401908026 under my guidance and supervision
and no part of the report has been submitted for the award of any other degree or published in
any other form to the best of my knowledge and belief.

I wish him all success in future.

Mr.Birjeet Mohanty

Faculty of Management

Amity, Bhubaneswar

TABLE OF CONTENT

CHAPTER 1: INTRODUCTION
 a. Background of the study
b. Problem statement
c. Objective
d. Outline of the study
CHAPTER 2: PROFILE OF THE ORGANISATION

CHAPTER 3: REVIEW OF LITERATURE

CHAPTER 4: RESEARCH METHODOLOGY

Sampling Technique
Data collection

CHAPTER 5: RESULT AND DISCUSSION

CHAPTER 6: RECOMODATION AND CONCLUSION

BIBLIOGRAPHY
IV
ABSTRACT
Now a days , Non –performing Assets or NPA is a rising issues often raised by all banks of India.
Indian banking, which experienced rapid growth following nationalization, began to face
pressures on asset quality by the 1980s. Simultaneously, the banking world everywhere was
gearing towards meeting new prudential norms and operational standards pertaining to capital
adequacy, accounting and risk management, transparency and disclosure etc. In the early 1990s,
India embarked on an ambitious economic reform programmed in which the banking sector
reforms formed a major part. The Committee on Financial System (1991) more popularly known
as the Narasimham Committee -I prepared the blue print for the reforms. Few of the major
aspects of the reforms process included (a) moving towards international norms in income
recognition and provisioning and other related aspects of accounting; (b) liberalization of entry
and exit norms leading to the establishment of several New Private Sector Banks and entry of a
number of new Foreign Banks; (c) freeing of deposit and lending rates (except the saving
deposit rate); (d) allowing Public Sector Banks access to public equity markets for raising
capital and diluting the government stake; (e) greater transparency and disclosure standards in
financial reporting; (f ) suitable adoption of Basel Accord on capital adequacy; (g) adoption of
technology in banking operations, etc.

In the 1990’s with the trend of globalization and more reforms in the act foreign private banks entered in
to the Indian market. As a result Indian banks face a competition against the private banks. Indian banks
are trying to gain advantage in the market by providing attractive loan packages for the Indian customers
who are always concern about easiest, cheaper way to gain money. Since banks are trying to get the
competitive advantages through providing more and more credit facilities to the people. Therefore, there
a result for increasing chances of bad debts occurs for those accounts . Money borrowers who could not
repay money in time, the bank treat those accounts in to the NPAs. Most of the banks of India are of
having huge NPAs in their annual balance sheet. But as there is the rule for banks that they should have
having NO NPA and further in addition with the strict instructions from RBI to maintain NPAs as
minimum possible, banks tends to hide their real NPAs in the annual balance sheet. As a result their
always a deficit or liability item in terms of losses brings long term problems for the banks. When the
banks were audited the auditor have the authority to ask about the NPAs? So, banks always try to
maintain highest secrecy about it’s NPAs by providing provisions in the balance sheet and by mal
practices. No banks never wants to show their actual NPAs though they are always trying to reduce this
NPAs.

CAUSES FOR NON-PERFORMING ASSETS IN PUBLIC SECTOR BANKS

Granting of credit for economic activities is the prime duty of banking. Apart from raising resources
through fresh deposits, borrowings and recycling of funds received back from borrowers constitute a
major part of funding credit dispensation activity. Lending is generally encouraged because it has the
effect of funds being transferred from the system to productive purposes, which results into economic
growth. However lending also carries a risk called credit risk, which arises from the failure of borrower .
Non-recovery of loans along with interest forms a major hurdle in the process of credit cycle. Thus, these
loan losses affect the banks profitability on a large scale. Though complete elimination of such losses is
not possible, but banks can always aim to keep the losses at a low level. Non-performing Asset (NPA) has
emerged since over a decade as an alarming threat to the banking industry in our country sending
distressing signals on the sustainability and endurability of the affected banks. The positive results of the
chain of measures affected under banking reforms by the Government of India and RBI in terms of the
two Narasimhan Committee Reports in this contemporary period have been neutralized by the ill effects
of this surging threat. Despite various correctional steps administered to solve and end this problem,
concrete results are eluding. It is a sweeping and all pervasive virus confronted universally on banking
and financial institutions. The severity of the problem is however acutely suffered by Nationalized Banks,
followed by the SBI group, and the all India Financial Institutions.

Now a days, the Non- Performing Asset is a rising Issue for all Concerns, Basically it is a question

raised by RBI and also a matter of all Banks suffering losses due to presence of NPAs.

So, I try to find out What is NPAs, What types of assets maintained by banks as NPA, what is the

standard guidelines for maintaining these NPAs and what practices really the banks follow, the problems

and issues to it and finally, the solutions and recommendations to it.

INTRODUCTION
BACKGROUND OF THE STUDY

The world is going faster in terms of services and physical products. However it has been
researched that physical products are available because of the service industries. In the nation
economy also, service industry plays vital role in the boosting up of the economy. The nations
like U.S, U.K, and Japan have service industries more than 55%. Banking sector reforms in India
has progressed promptly on aspects like interest rate deregulation, reduction in statutory reserve
requirements, prudential norms for interest rates, asset classification, income recognition and
provisioning. But it could not match the pace with which it was expected to do. The
accomplishment of these norms at the execution stages without restructuring the banking sector
as such is creating havoc.
The efficiency of a bank is not always reflected only by the size of its balance sheet but by the
level of return on its assets. NPAs do not generate interest income for the banks, but at the same
time banks are required to make provisions for such NPAs from their current profits. The main
aim of any person is the utilization money in the best manner since the India is country where
more than half of the population has problem of running the family in the most efficient manner.
However Indian people faced large number of problem till the development of the full-fledged
banking sector. The Indian banking sector came into the developing nature mostly after the 1991
government policy. The banking sector has really helped the Indian people to utilize the single
money in the best manner as they want. People now have started investing their money in the
banks and banks also provide good returns on the deposited amount. The people now have at the
most understood that banks provide them good security to their deposits and so excess amounts
are invested in the banks. Thus, banks have helped the people to achieve their socio economic
objectives. The banks not only accept the deposits of the people but also provide them credit
facility for their development. Indian banking sector has the nation in developing the business
and service sectors. But recently the banks are facing the problem of credit risk. It is found that
many general people and business people borrow from the banks but due to some genuine or
other reasons are not able to repay back the amount drawn to the banks. The amount which is not
given back to the banks is known as the non performing assets. Many banks are facing the
problem of non- performing assets which hampers the business of the banks. Due to NPAs the
income of the banks is reduced. The world is going faster in terms of services and physical
products. However it has been researched that physical products are available because of the
service industries. In the nation economy also service industry plays vital role in the boosting up
of the economy. The nations like U.S, U.K, and Japan have service industries more than 55%.
The banking sector is one of appreciated service industries. The banking sector plays larger role
in channelizing money from one end to other end. It helps almost every person in utilizing the
money at their best. The banking sector accepts the deposits of the people and provides fruitful
return to people on the invested money. But for providing the better returns plus principal
amounts to the clients; it becomes important for the banks to earn. The main source of income
for banks is the interest that they earn on the loans that have been disbursed to general person,
businessman, or any industry for its development. Thus, we may find the input-output system in
the banking sector. Banks first, accepts the deposits from the people and secondly they lend this
money to people who are in the need of it. By the way of channelizing money from one end to
another end, Banks earn their profits.

However, Indian banking sector has recently faced the serious problem of Non Performing
Assets. This problem has been emerged largely in Indian banking sector since three decade. Due
to this problem many Public Sector Banks have been adversely affected to their performance and
operations. In simple words Non Performing Assets problem is one where banks are not able to
recollect their landed money from the clients or clients have been in such a condition that they
are not in the position to provide the borrowed money to the banks. The problem of NPAs is
danger to the banks because it destroys the healthy financial conditions of them. The trust of the
people would not be any more if the banks have higher NPAs. So. The problem of NPAs must be
tackled out in such a way that would not destroy the operational, financial conditions and would
not affect the image of the banks. Recently, RBI has taken number steps to reduce NPAs of the
Indian banks. And it is also found that the many banks have shown positive figures in reducing
NPAs as compared to the past years.

PROBLEM STATEMENT

1.) Owners do not receive a market return on their capital . In the worst case,if the bank fails ,
owners lose their assets . In modern times, this may affect a broad pool of shareholders.

2.) Depositors do not receive a market return on savings. In the worst case if the bank fails
,depositors lose their assets or uninsured balance. 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.

3.) Non performing loans represent bad investments . NPA misallocate credit from good
projects , which do not receive funding ,to failed projects.Bad investment end up in misallocation
of capital and , by extension ,labour and natural resources . The economy performs below its
production potential .

4.) Non performing loans may spill over the banking system and contract the money stock
,which may lead to economic contaction .
This spillover effect can channelise through illiquidity or bank insolvency;

(a) When many borrowers fail to pay interest ,banks may experience liquidity shortages .These
shortages can jam payments across the country.

(b) Illiquidity constraints bank in paying depositors eg. Cashing their paychecks.

Banking panic follows . A run on bank by depositors as part of the national money stock become
inoperative . The money stock contracts and economic contraction follows

(c) Undercapitalised banks exceeds the banks capital base.

1.1 Rationale of the study

A strong banking sector is important for flourishing economy. The failure of the banking sector
may have an adverse impact on other sectors. Non-performing assets are one of the major
concerns for banks in India.

NPAs reflect the performance of banks. A high level of NPAs suggests high probability of a
large number of credit defaults that affect the profitability and net-worth of banks and also
erodes the value of the asset. The NPA growth involves the necessity of provisions, which
reduces the over all profits and shareholders value.

The issue of Non Performing Assets has been discussed at length for financial system all over the
world. The problem of NPAs is not only affecting the banks but also the whole economy. In fact
high level of NPAs in Indian banks is nothing but a reflection of the state of health of the
industry and trade.

The main aim behind making this report is to know how Public Sector Banks are operating their
business and how NPAs play its role to the operations of the Public Sector Banks. The report
NPAs are classified according to the sector, industry, and state wise. The present study also
focuses on the existing system in India to solve the problem of NPAs and comparative analysis
to understand which bank is playing what role with concerned to NPAs. Thus, the study would
help the decision makers to understand the financial performance and growth of Public Sector
Banks as compared to the NPAs.

That’s why the study of NPA’s become necessary due to the above mentioned reasons :

 They erode current profits through provisioning requirements.

 They result in reduced interest income.

 They require higher provisioning requirements affecting profits and accretion to capital
funds and capacity to increase good quality risk assets in future, and

 They limit recycling of funds, set in asset-liability mismatches, etc.

Objective of the study

 To know why NPAs are the great challenge to the Public Sector Banks.

 To understand what is Non Performing Assets and what are the underlying reasons for
the emergence of the NPAs.

 To understand the impacts of NPAs on the operations of the Public Sector Banks.

 To know what steps are being taken by the Indian banking sector to reduce the NPAs
OUTLINE OF THE STUDY

The first chapter explains about the introduction to the research topic, its
relevance, objectives, and limitations of the study. The profile of the company
where the research has been carried out is presented in the second chapter. The
reviews of different literatures are presented in the third chapter. The fourth
chapter explains about the materials and methods used to carry out the study.
The results and discussions of the study are presented in the fifth chapter. The
conclusions and recommendations of the study are presented the sixth chapter.
The final and seventh chapter explains about the implications of the study for
future reference.
PROFILE OF THE
ORGANISA
TION
REVIEW OF
LITERATURE
NEW DELHI: If non-performing assets (NPAs) are any parameter to judge the efficiency of
banks, then private sector such as ICICI Bank and HDFC Bank surely need to take a lesson or
two from the public sector banks on how to clean bad debts from their books.

In the financial year 2007-’08, even as public sector banks (barring State Bank of Saurashtra) put
up an inspired show to drastically reduce the NPAs, the two private majors — ICICI Bank and
HDFC Bank — have struggled to fix the problem of higher proportion of non-performing debt
(see table). While in the case of HDFC Bank the increase in the gross NPAs in percentage terms
is marginal (1.5 %), there are worrying signs for India’s largest private bank, ICICI Bank which
witnessed a rise of approximately 59% in the gross NPAs in percentage terms.

To get the real picture, SundayET made calculations of gross NPAs in percentage terms and not
in volume terms as one tends to ignore the change in the asset size of a bank in the latter’s case.
To give you an example, in volume terms, State Bank of India (SBI) reported a jump of more
than 20% in bad loans from Rs 9,998 to Rs 12,037 crore during the last financial year but if
calculations are made in percentage terms there is an improvementingrossNPAsby2.73%.

This is because not only bad loans have increased but also the asset size of bank too. So it would
be unfair to conclude that the bank faired badly in cleaning bad assets without looking at the
picture in real terms, that is percentage.
ICICI Bank deputy chief financial officer Rajesh Jha told SundayET that the increase in the
NPAs is inevitable as the bank is expanding its retail portfolio. “If one says, that we didn’t
anticipate, it will be wrong. In fact, we are already prepared for the fact that NPAs will rise in the
coming financial year too,” he said. “Currently, almost 20% of the retail loans are unsecured.
Whatsoever cautious you may be, when you are expanding it is difficult to get rid of bad debts.

Out of every 100 loans, three or four eventually go bad,” he said. However, he felt that
comparison with public sector banks is unwarranted as their portfolio is different. In terms of
volume, on March 31, 2008, ICICI Bank’s gross NPAs stood at Rs 7,580 crore, in comparison
with Rs 4,126 crore a year ago, which is an increase of almost 84%?
Amongst large public sector banks, the best performing bank was central bankof India which
reduced its gross NPAs in percentage terms by 34%. Similarly, Indian Bank and Punjab & Sind
Bank were the best performers among the medium-size and small-size public sector banks’
category, reducing gross NPAs by approximately 35% and 69% respectively.

Among the State Bank group, the shining star was State Bank of Hyderabad that cut down on
gross NPAs by almost 30% in percentage terms. During the last financial year, the only dark spot
amongst the public sector banks was State Bank of Saurashtra which had bad debts increasing by
26% in percentage terms.

A senior economist -has pointed out that it’s more of a cyclical downturn because of stress in
small-ticket retail loans, which is leading to high NPAs. “It should be noted that the private
banks have made huge earnings through retail portfolio in the last five-seven years, which has
resulted in their valuations soaring,” he said. According to him, the reasons for low NPAs in
public setor banks is primarily due to their less aggresive approach in the retail loan segment.

As the financial crisis devours more banks in the US and the disease spreads to Europe, investors
appear to be concerned about the fate of local banks as well. While the broader market has fallen
by about 40% from its peak (as measured from the S&P CNX Nifty), the banking sector
benchmark Bank Nifty has shed nearly 50%. However, bank fundamentals suggest concerns
appear to be over done.

The Reserve Bank of India's recently released report 'A Profile of Banks : 2007-08' shows the net
NPA ratio of the scheduled commercial banks fell further and was placed at 1% of advances at
the end of March 2008. And the capital to risk-weighted assets ratio (capital adequacy ratio) was
placed at a healthy 13% at the end of the year. What is perhaps worrying the market is that the
NPA levels could rise sharply in the next few years.

Net non-performing assets (NPAs) of Indian banks had declined because of a deceleration in new
accruals, and a rapid increase in credit over the last few years. In the case of nationalised banks,
for instance, advances grew at over 30% CAGR over the four years to 2007-08. This strong
growth also helped bring down net NPAs relative to advances. But there are signs that the tide
may have turned; the NPA situation could deteriorate rapidly.

A Goldman Sachs study of Indian banks, for instance, shows that there was a trend reversal in
new NPA accrual rate. After declining steadily though to 2006, the new accrual rate increased in
2007 (see chart). In keeping with this trend, the gross NPA ratios have also inched up
marginally. This trend reversal in 2007 is, however, based on data for major banks only, which
accounted for about 64% of gross bank credit.

As banks tighten credit, and indications are there that this is already happening in the case of
short-term loans, borrowers may find it difficult to refinance their loans. They may then be
forced into default. The small and medium enterprises (SMEs) which have received a large share
of the incremental credit in the last few years are particularly vulnerable. Goldman Sachs expects
NPAs to double from the levels seen in 2007, largely because of the stress in the SME and mid-
sized corporate segments.

The retail portfolio of banks is the other worry. Some of the aggressive private sector banks have
over 60% of their portfolio in the retail segment. The variable rate lending, largely in the
mortgage portfolio, is likely to come under stress. Interest rates have risen nearly five percentage
points from their near 7% lows. The attendant increase in monthly installments has been of the
order of 50% in many cases, even after the option of extending tenure has been exhausted. An
increase of this magnitude is sure to cause stress. Besides, lending standards may also have been
compromised in search for high retail growth. Therefore, delinquencies are likely to be higher
even in the case of retail portfolio.

The immediate impact of this would be lower profitability in the years ahead, as provisioning
would have to increase in line with higher bad assets. However, it is unlikely that bad assets
would reach anywhere near crisis levels. Indian banks are adequately capitalised and the
deterioration in asset quality is more cyclical; after strong credit growth there is invariably an
increase in NPAs. Also, on the positive side, banks have nearly 30% of their portfolio in
government securities .
.

The consensus is that interest rates are already near their peak and if inflation starts to moderate
some softening in monetary policy is likely towards the end of the fiscal. In fact, yield on
benchmark ten-year paper have already drifted down from their recent peaks, causing banks'
bond portfolio to appreciate sharply. To the extent some banks are able to book these gains the
effect of provisioning could be offset. In all, a usual business cycle issue with Indian banks.

B. Sathish Kumar
In liberalizing economy banking and financial sector get high priority. Indian banking sector of
having a serious problem due non performing. The financial reforms have helped largely to clean
NPA was around Rs. 52,000 crores in the year 2004. The earning capacity and profitability of the
bank are highly affected due to this

NPA is defined as an advance for which interest or repayment of principal or both remain out
standing for a period of more than two quarters. The level of NPA act as an indicator showing
the bankers credit risks and efficiency of allocation of resource.

The Indian banking sector is facing a serious problem of NPA. The extent of NPA is
comparatively higher in public sectors banks. (Table II&III). To improve the efficiency and
profitability, the NPA has to be scheduled. Various steps have been taken by government to
reduce the NPA. It is highly impossible to have zero percentage NPA. But at least Indian banks
can try competing with foreign banks to maintain international standard.
RESEARCH
METHODOLOGY

Sample: it is a small representation of Big entity or population.

Sampling: The process of testing sample is called sampling.
Sample unit: It is a fraction or single entity of sample that is kept under observation.

SAMPLE UNIT:

This involves figuring out how many samples one need.

The numbers of samples you need are affected by the following factors:

• Project goals

• How you plan to analyze your data

• How variable your data are or are likely to be

• How precisely you want to measure change or trend

• The number of years over which you want to detect a trend

• How many times a year you will sample each point

• How much money and manpower you have

RESEARCH
Research always starts with a question or a problem. It is a systematic and intensive study Move
towards a Comprehensive analysis of a subjected problem.

The research is conducted with the following sequences:

 Formulating the problems

 Developing objectives of the research
 Designing an effective research plan
 Data collection techniques
 Evaluating the data and preparing a research report.

Research Methodology:

Research methodology is designed in order to solve a research problem. I have conducted a

descriptive research to understand and devolve knowledge on the existing problem of Non
performing Assets.

DATA COLLECTION TECHNIQUES

There are different kinds of data collection techniques available. They are like Surveys,
Interviews, questionnaires etc. For my research I have chosen the interview technique to be the
best one for me to gather information. Further the interview technique includes the direct
interview with the respondent. I have made appointment with the interview for taking the
interview.

Source of data collection:-

For my research I have collected the database from two sources.

1) Primary sources
2) Secondary sources.

Primary Sources-NIL

Secondary Sources
The secondary data are those, which have already been collected by someone else and which
already have been passed the statistical process. The secondary source includes:
a) Internal secondary data
b) External Secondary data

Internal Secondary Sources

The internal secondary source are:
 Bank’s annual financial statement which is published every year.
 The website of the bank.

External Secondary Sources

It includes
 The report generated by government and other syndicated services.
 Internet.
 Reference Books
Analysis of Collected Information

This involves converting raw data into useful information. It involves tabulation of data, using
statistical measures on them for developing frequency distributions and calculating the averages
and dispersions. The analysis procedure goes beyond merely describing what the sample data
looks like. The tools that have been employed for the research for data analysis are bar charts
that constitute the graphical representation.

Nature of research

The research which I am doing is basically a Descriptive Research. Descriptive research are
characterized by a accurate description of the problem , further as a part of conclusive
research it helps a decision maker to choose one course of action from among the available
alternatives. Thus, it will helps a decision maker to arrive at a solution. Thus. It helps me in
identifying the information required for my research and actual description of the problem
with it’s solution
 I have analyzed my data through statistical methods through graphs and diagrams.
 The graphs are basically the line graphs.
RESULT AND
DISCUSSION
Following are the Public sector Banks included

for the Ratio analysis .

1. Allahabad Bank

2. Andhra Bank

3. Bank of Baroda
4. Bank of India

5. Bank of Maharashtra

6. Canara Bank

7. Central Bank of India

8. Corporation Bank

9. Dena Bank

10. Indian Bank

11. Indian Overseas bank

12. Oriental Bank of Commerce

13. Punjab National Bank

14. Punjab and Sind Bank

15. State Bank of India

16. State Bank of India & its associates.

 State Bank of Hyderabad

 State Bank of India

 State Bank of Indore

 State Bank of Mysore

 State Bank of Saurashtra

 State Bank of Travancore

17. Syndicate Bank

18. UCO Bank

 19. Union Bank of India (UBI)

20. Vijaya Bank

RATIO ANALYSIS

GROSS NPA RATIO:

Gross NPA Ratio is the ratio of gross NPA to gross advances of the Bank.Gross NPA is the
sum of all loan assets that are classified as NPA as per the RBI guidelines. The ratio is to be
counted in terms of percentage and the formula for GNPA is as follows:

Gross NPA ratio = (Gross NPA / Gross advances)*100

Gross NPAs to Gross Advances
 Name of Bank 2007 2008 2009
S. No.
1 2 3 4 5
Nationalized
Bank
1 Allahabad Bank 3.9 2.6 2.0
2 Andhra Bank 1.9 1.4 1.1
3 Bank of Baroda 3.9 2.5 1.8
4 Bank of India 3.7 2.4 1.7
5 Bank of 5.5 3.5 2.6
Maharashtra
6 Canara Bank 2.3 1.5 1.3
7 Central Bank of 6.8 4.8 3.2
India
8 Corporation 2.6 2.1 1.5
Bank
9 Dena Bank 6.4 4.1 2.4
10 Indian Bank 2.9 1.9 1.2
11 Indian overseas 3.4 2.3 1.6
bank
12 Oriental Bank 6.0 3.2 2.3
of Commerce
13 Punjab & Sind 9.6 2.4 0.7
Bank
14 Punjab National 4.1 3.5 2.7
Bank
15 Syndicate bank 4.0 3.0 2.7
16 UCO Bank 3.3 3.2 3.0
17 Union Bank of 3.8 2.9 2.2
India
18 United Bank of 4.7 3.6 2.7
India
19 Vijaya Bank 3.2 2.3 1.6
20 State Bank of 3.9 2.9 3.0
India

21 State Bank of 2.4 2.2 1.7

Bikaner &
Jaipur
22 State Bank of 2.1 1.2 0.9
Hyderabad
23 State Bank of 3.0 1.9 1.4
Indore
24 State Bank of 3.3 2.3 1.7
Mysore
25 State Bank of 2.4 1.8 1.4
Patiala
 Findings from the above table :

• The table above indicates the quality of credit portfolio of the banks. High gross NPA
ratio indicates the low credit portfolio of bank and vice-a-versa.

• We can see from the above table that the Central Bank of India has the higher gross
NPA ratio of 3.2 % followed by the State Bank of India & UCO Bank with 3.0 %. The
Punjab National Bank, Syndicate Bank of India and united Bank of India also have
higher gross NPA ratio with 2.7% in 2008.

• Whereas the state Andhra Bank , Punjab & Sind Bank , State Bank of hyderabad
showed lower ratio with 1.1 %, 0.7 % and 0.9% in the year 2008 .

NET NPA RATIO:

The net NPA percentage is the ratio of net NPA to net advances, in which the provision is to
be deducted from the gross advance. The provision is to be made for NPA account. The
formula for that is :

(i) Net NPA Ratio = (Gross NPA-Provision /Gross Advances-Provisions) * 100

Net NPA to Gross Advances

Name of Bank 2007 2008 2009

S. No.
1 2 3 4 5
Nationalized
Bank
1 Allahabad Bank 0.84 1.07 0.80
2 Andhra Bank 0.24 0.17 0.15
3 Bank of Baroda 0.87 0.60 0.47
4 Bank of India 1.49 0.74 0.52
5 Bank of 2.03 1.21 0.87
Maharashtra
6 Canara Bank 1.12 0.94 0.84
7 Central Bank of 2.59 1.70 1.45
India
8 Corporation 0.64 0.47 0.32
Bank
9 Dena Bank 3.04 1.99 0.94
10 Indian Bank 0.79 0.35 0.24
11 Indian overseas 0.65 0.55 0.60
bank
12 Oriental Bank 0.49 0.49 0.99
of Commerce
13 Punjab & Sind 2.43 0.66 0.37
Bank
14 Punjab National 0.29 0.76 0.64
Bank
15 Syndicate bank 0.86 0.76 0.97
 16 UCO Bank 2.10 2.14 1.98
17 Union Bank of 1.56 0.96 0.17
India
18 United Bank of 1.95 1.50 1.10
India
19 Vijaya Bank 0.85 0.59 0.57
20 State Bank of 1.88 1.56 1.78
India
21 State Bank of 1.18 1.09 0.83
Bikaner &
Jaipur

22 State Bank of 0.36 0.22 0.16

Hyderabad
23 State Bank of 1.83 1.04 0.73
Indore
24 State Bank of 0.74 0.45 0.43
Mysore
25 State Bank of 0.99 0.83 0.60
Patiala
26 State Bank of 1.16 0.70 0.91
Saurashtra
27 State Bank of 1.47 1.08 0.94
Travancore

Findings from the above table :

• High NPA ratio indicates the high quantity of risky assets in the Banks for which no
provision are made.

• From the table it becomes clear that the NPA ratio of almost all the Banks have been
improved quite well as compared to the previous year.
 • The UCO bank has the highest NPA ratio of 1.98 % followed by the State Bank of
India with 1.78 % & Central Bank of India with 1.45% . The Andhra Bank has
showed the lowest NPA ratio .15% and State Bank of Hyderabad, Union Bank of India
have also showed lower NPA ratio with .16 % and .17 % in 2008.

PROVISION RATIO:

Provisions are to be made to keep safety against the NPA, & it directly affect on the gross
profit of the Banks. The provision Ratio is nothing but total provision held for NPA to gross
NPA of the Banks. The formula for that is,

(i) Provision Ratio = (Total Provision/Gross NPA)*100

(ii) [ Additional Formulae: Net NPA = Gross NPA – Provision

Therefore , Provision = Gross NPA – Net NPA ]

Provision Ratio

Name of Bank 2007 2008 2009

S. No.

1 2 3 4 5
Nationalized
Bank
1 Allahabad Bank 79.21 59.78 60.43
2 Andhra Bank 87.99 88.09 85.58
3 Bank of Baroda 78.32 76.02 75.09
4 Bank of India 60.89 69.91 69.34
5 Bank of 64.61 66.18 36.48
Maharashtra
6 Canara Bank 50.95 37.93 36.48
7 Central Bank of 63.78 65.86 54.89
India
8 Corporation 75.41 77.27 78.28
Bank
9 Dena Bank 54.4 50.99 62.37
10 Indian Bank 73.59 81.28 79.95
11 Indian overseas 8.4 76.98 63.56
bank
12 Oriental Bank 92.29 85.16 57.90
of Commerce
13 Punjab & Sind 76.58 73.51 50.58
Bank
14 Punjab National 93.3 78.59 77.29
Bank
15 Syndicate bank 79.25 74.93 64.79
16 UCO Bank 36.42 33.2 33.87
17 Union Bank of 60.25 67.89 92.29
India
18 United Bank of 59.27 59.24 59.78
India
19 Vijaya Bank 73.65 74.48 64.49
20 State Bank of 48.98 42.16
India 47.41

21 State Bank of 51.85 51.88 42.16

Bikaner &
Jaipur
 22 State Bank of 83.35 82.52 81.73
Hyderabad
23 State Bank of 39.02 45.93 49.69
Indore
24 State Bank of 78.28 80.48 75.10
Mysore
25 State Bank of 37.58 54.53 58.34
Patiala
26 State Bank of 37.58 36.65 36.71
Saurashtra
27 S tate Bank of 54.68 50.45 53.10

Findings from the above table

• This Ratio indicates the degree of safety measures adopted by the Banks.

• It has direct bearing on the profitability, Dividend and safety of shareholders’ fund.

• If the provision ratio is less, it indicates that the Banks has made under provision.

• The highest provision ratio is showed by corporation Bank with Union Bank of India
with 92.29% followed by Andhra Bank of commerce with 85.58 % & State Bank of
Hyderabad with 81.73% . in the year 2008 .
 • The lowest provision ratio is showed UCO Bank with only 33.87 % followed by Bank
of Maharastra & Canara bank With 36.48%

4.4 PROBLEM ASSET RATIO:

It is the ratio of gross NPA to total asset of the bank. The formula for that is:

Problem Asset Ratio = (Gross NPAs/Total Assets ) * 100

Problem asset ratio

Name of Bank 2007 2008 2009

S. No.
1 2 3 4 5
Nationalized Bank

1 Allahabad Bank 2.14 1.61 1.21

2 Andhra Bank 1.07 0.83 0.66

3 Bank of Baroda 2.10 0.14 1.10

4 Bank of India 2.20 1.48 1.07

5 Bank of 3.02 2.10 1.59

Maharashtra

6 Canara Bank 1.35 0.90 0.78

7 Central Bank of 3.59 2.76 1.90

India
8 Corporation Bank 1.54 1.18 0.88

9 Dena Bank 3.57 2.36 1.48

10 Indian Bank 1.40 0.97 0.70

11 Indian overseas 1.69 1.36 0.98

bank

12 Oriental Bank of 3.31 1.96 1.41

Commerce

13 Punjab & Sind 3.31 1.32 0.44

Bank

14 Punjab National 4.94 2.08 1.67

Bank

15 Syndicate bank 2.16 3.79 0.16

16 UCO Bank 0.24 2.01 1.84

17 Union Bank of 1.00 1.82 1.34

India

18 United Bank of 2.35 1.93 1.40

India

19 Vijaya Bank 0.91

20 State Bank of India 1.95 1.76 1.78

21 State Bank of 1.95 1.34 1..06

Bikaner & Jaipur

22 State Bank of 14.11 0.71 0.50

Hyderabad

23 State Bank of 1.12 1.19 9.06

Indore

24 State Bank of 1.75 1.42 1.08

Mysore
 25 State Bank of 2.05 1.10 0.88
Patiala

26 State Bank of 13.17 0.65 0.82

Saurashtra

27 State Bank of 0.95 1.42 0.69

Travancore

Source : Reserve Bank of India

Findings from the above table :

• We determine the percentage of assets out of total assets / advances that are likely to
become the Non performing Assets as problematic assets .

• From the above table it becomes clear that Punjab and Sind Bank and Dena Bank have
the high ratio of 8.6% and 8.0%.

• That Ratio implies that the both above banks have the highest probability of creating
NPA’s in the near future .

CAPITAL ADEQUACY RATIO

Capital Adequacy Ratio can be defined as ratio of the capital of the Bank, to its assets, which
are weighted/adjusted according to risk attached to them i.e.

Capital Adequacy Ratio = Capital/ Risk Weighted Assets* 100

Capital adequacy ratio

 Name of Bank 2007 2008 2009
S. No.
1 2 3 4 5

1 Allahabad Bank 13.37 1.07 0.80

2 Andhra Bank 14.00 0.17 0.15
3 Bank of Baroda 13.65 0.60 0.47
4 Bank of India 10.75 0.95 0.52
5 Bank of 11.27 1.21 0.87
Maharashtra
6 Canara Bank 11.22 0.94 0.84
7 Central Bank of 11.03 1.70 1.45
India
8 Corporation 13.02 0.47 0.32
Bank
9 Dena Bank 10.62 1.99 0.94
10 Indian Bank 13.19 0.35 0.24
11 Indian overseas 13.04 0.55 0.60
bank
12 Oriental Bank of 11.04 0.49 0.99
Commerce
13 Punjab & Sind 12.83 0.66 0.37
Bank
14 Punjab National 11.95 0.76 0.64
Bank
15 Syndicate bank 11.73 0.76 0.97
16 UCO Bank 11.12 2.14 1.98
17 Union Bank of 11.41 0.96 0.17
India
18 United Bank of 13.12 1.50 1.10
India
19 Vijaya Bank 13.12 0.59 0.57

20 State Bank of 11.88 1.56 1.78

India
21 State Bank of 12.08 1.09 0.83
Bikaner &
Jaipur
22 State Bank of 12.08 0.22 0.16
Hyderabad
23 State Bank of 11.40 1.04 0.73
Indore
24 State Bank of 11.37 0.45 0.43
Mysore
25 State Bank of 13.67 0.83 0.60
Patiala
26 State Bank of 12.03 0.70 0.91
 Findings from the above table :

• The capital adequacy ratio is important for them to maintain as per the banking
regulations.

• Each bank needs to create the capital Reserve to compensate the Non Performing Assets.

• Each Asset has given a risk weightage as per RBI guidelines

• Risk weighted Asset = Asset * Risk Weightage

So, More the Risk weighted Assets are , Bank has to maintain more capital .

• As far as this ratio is concerned the UCO Bank has shown much appreciated result by
acquiring the ratio of 1.98 % followed by the State Bank of India and Central Bank of
India having ratios of 1.78% and 1.45% .

SUB-STANDARD ASSETS RATIO

• It is the ratio of Total Substandard Assets to Gross NPA of the bank.

 • Substandard Assets Ratio= total substandard assets /Gross NPAs*100

• It indicates scope of up gradation/improvement in NPA.

• Higher substandard asset ratio means that in whole NPA the sub standard ratio has major
proportion, which indicates that there is a high scope for advance up gradation or
improvement because it will be very easy to recover the loan as minimum duration of
default.

DOUBTFUL ASSET RATIO:

• It is the ratio of Total Doubtful Assets to Gross NPAs of the bank.

• Doubtful Asset Ratio =Total doubtful assets/Gross NPAs*100

• It indicates the scope of compromise for NPA reduction.

LOSS ASSET RATIO:

• It is the ratio of total loss assets to Gross NPA of the bank.

• Loss Asset Ratio=Total Loss Assets /Gross NP A* 100

• It indicates the proportion of bad loans in the banks.

• However if the ratio increases in the recent year, which is detrimental to the bank. The
bank must take necessary steps to control this ratio, as it is the indication that there is
increasing incidence of erosion of securities and fraudulent Loan Accounts in the
bank.
Findings
Recommendations
&
Conclusion
 1.) Gross NPA Ratio for 2009 - Findings

3.5

2.5

2 Findings from the above table :

• High gross NPA ratio indicates the low credit portfolio of bank and vice-a-versa.

1.5
• We can see from the above table that the Central Bank of India has the higher gross
NPA ratio of 3.2 % followed by the State Bank of India & UCO Bank with 3.0 %. The
Punjab National Bank, Syndicate Bank of India and united Bank of India also have
higher gross NPA ratio with 2.7% in 2008.

• Whereas the state Andhra Bank , Punjab & Sind Bank , State Bank of hyderabad
showed lower ratio with 1.1 %, 0.7 % and 0.9% in the year 2008 .

2.)Net NPA Ratio for 2009 – Findings

2.5

1.5
Findings from the above table :

1
• This ratio indicates the degree of risk in the portfolio of the banks. High NPA ratio
indicates the high quantity of risky assets in the Banks for which no provision are
made.

• From the table it becomes clear that the NPA ratio of almost all the Banks have been
improved quite well as compared to the previous year.

• The UCO bank has the highest NPA ratio of 1.98 % followed by the State Bank of
India with 1.78 % & Central Bank of India with 1.45% . The Andhra Bank has
showed the lowest NPA ratio .15% and State Bank of Hyderabad, Union Bank of India
have also showed lower NPA ratio with .16 % and .17 % in 2008

3.) Provisioning Ratio - Findings

 Findings from the above table

• This Ratio indicates the degree of safety measures adopted by the Banks.

• It has direct bearing on the profitability, Dividend and safety of shareholders’ fund.

• If the provision ratio is less, it indicates that the Banks has made under provision.

• The highest provision ratio is showed by corporation Bank with Union Bank of India
with 92.29% followed by Andhra Bank of commerce with 85.58 % & State Bank of
Hyderabad with 81.73% . in the year 2008 .

• The lowest provision ratio is showed UCO Bank with only 33.87 % followed by Bank
of Maharastra & Canara bank With 36.48%

4.) Problem Asset Ratio - Findings

 10
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Findings from the above table :

• We determine the percentage of assets out of total assets / advances that are likely to
become the Non performing Assets as problematic assets .

• From the above table it becomes clear that Punjab and Sind Bank and Dena Bank have
the high ratio of 8.6% and 8.0%.

• That Ratio implies that the both above banks have the highest probability of creating
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Findings from the above table :

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Each bank needs to create the capital Reserve to compensate the Non Performing Assets.
The capital adequacy ratio is important for them to maintain as per the banking
5.) Capital Adequacy Ratio - Findings
• Each Asset has given a risk weightage as per RBI guidelines

• Risk weighted Asset = Asset * Risk Weightage

So, More the Risk weighted Assets are , Bank has to maintain more capital .

• As far as this ratio is concerned the UCO Bank has shown much appreciated result by
acquiring the ratio of 1.98 % followed by the State Bank of India and Central Bank of
India having ratios of 1.78% and 1.45% .

Recommendations of the study

Through RBI has introduced number of measures to reduce the problem of increasing NPAs
of the banks such as CDR mechanism. One time settlement schemes, enactment of SRFAESI
act, etc. A lot of measures are desired in terms of effectiveness of these measures. What I
would like to suggest for reducing the evolutions of the NPAs of Public Sector Banks are as
under.

(1) Each bank should have its own independent credit rating agency which should evaluate the
financial capacity of the borrower before than credit facility.

(2) The credit rating agency should regularly evaluate the financial condition of the clients.

(3) Special accounts should be made of the clients where monthly loan concentration reports
should be made.
(4) It is also wise for the banks to carryout special investigative audit of all financial and
business transactions and books of accounts of the borrower company when there is
possibility of the diversion of the funds and mismanagement.

(5) The banks before providing the credit facilities to the borrower company should analyze
the major heads of the income and expenditure based on the financial performance of the
comparable companies in the industry to identify significant variances and seek explanation
for the same from the company management. They should also analyze the current financial
position of the major assets and liabilities.

(6) Banks should evaluate the SWOT analysis of the borrowing companies i.e. how they
would face the environmental threats and opportunities with the use of their strength and
weakness, and what will be their possible future growth in concerned to financial and
operational performance.

(7) Independent settlement procedure should be more strict and faster and the decision made
by the settlement committee should be binding both borrowers and lenders and any one of
them failing to follow the decision of the settlement committee should be punished severely

Conclusion of the Study

1. The NPA is one of the biggest problem that the Public Sector Banks are facing today is the
problem of nonperforming assets. If the proper management of the NPAs is not undertaken
it would hamper the business of the banks.
2. In absolute terms, the last three years have seen an increase in the net NPAs of
25 public sector banks by 24 per cent. According to the numbers, the last year it saw
a 17 percent rise in the sticky assets.

3.The largest public sector lender, SBI, has seen an increase in the net NPAs by a whopping

41 percent in 2008-09 .

4.As the global slowdown has crept into the economy, bankers feel that in more loans are
going to turn bad in the coming quarters and therefore they want RBI to relax the deadline
for loan reconstruction.

5. Due to Recession & slowdown in the Indian economy would result in emerging
NPA ‘s for the public sector banks from textiles, real estate, retail, exports and auto sectors.

6.The RBI has also been trying to take number of measures but the ratio of NPAs is not
decreasing of the banks. The banks must find out the measures to reduce the evolving
problem of the NPAs.

7.The reduction of the NPAs would help the banks to boost up their profits, smooth recycling
of funds in the nation. This would help the nation to develop more banking branches and
developing the economy by providing the better financial services to the nation.

8. 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.

10.) As a result of the NPA’s owners do not receive a market return on their capital . In the
worst case,if the bank fails, owners lose their assets & this may affect a broad pool of
shareholders & act as a rain on Profitability.

11.) 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 .
12.) When many borrowers fail to pay interest ,banks may experience liquidity shortages
.These shortages can jam payments across the country and as a result Non performing loans
may spill over the banking system and contract the money stock ,which may lead to
economic contraction .

13.) Banks need to create capital reserve to writeoff the mounting NPA’s burden .

14.) “A Man without money is like a bird without wings”, the Rumanian proverb insists the
importance of the money. A bank is an establishment, which deals with money. The basic
functions of Commercial banks are the accepting of all kinds of deposits and lending of
money. In general there are several challenges confronting the commercial banks in its day
today operations. The main challenge facing the commercial banks is the disbursement of
funds in quality assets (Loans and Advances) or other wise it leads to Non-performing
assets.”

BIBLIOGRAPHY

Websites:

• http://www.equitymaster.com/stockquotes/mystocks.asp

• http://moneyterms.co.uk/interest_spread/

• http://economictimes.indiatimes.com/Features/The_Sunday_ET/Economy/Private_
banks_struggle_to_manage_their_non-
performing_assets/articleshow/3049718.cms#write

• www.123eng.com
• http://www.rupeetimes.com/experts/joseph_samson_5.html

• http://www.rupeetimes.com/news/personal_loan/banks_ask_rbi_to_relax_npa_nor
ms_for_real_estate_sector_1919.html
• http//:www.rbi.org.com

• http//:www.money.radiff.com

• http//:www.economictimes.indiatimes.com