A study of Non-Performing Assets of scheduled commercial Bank

* Dr. S.K Khatik

**Ms Uma Sharma
Abstract

* Professor & Head, Department of Commerce, Dean Faculty of Commerce, Chairman of Board
of Studies, Barkatullah University, Bhopal.
**Guest Faculty, Govt.Girls College, Vidisha.
Introduction

Banking sector is one of the largest financial sectors of the modern economy. It plays an
important role in economic development of a country and infact strength of the financial
system also depends on a solvent banking system. Business banking, digital banking,
loans are such financial services to customers which make people life better. Among all
these services, Net performing assets are one of the credit facility in respect of which the
interest and or installment of bond finance principal has remained past due for a specified
period of time. Today public sector banks have been facing a serious problem of NPAs.
NPA has a direct impact on the profitability of banks. NPAs not only affect the
profitability but also the liquidity of the bank. The prime function of bank is to lend
money as to lend money as loan to various sectors such as agriculture personal loans,
housing loans, industry etc. As per the RBI statistical table in India 2015-16, NPAs were
3% of gross advances of all banks in India in 2013. But it has grown by 9.3% in 2016.
Public sector banks comprising of 21 nationalized banks and six of the SBI group,
account for almost 70% of the assets and liabilities of the system. In June 2017 public
sector banks accounted for 90% of their total gross NPAs of the banking sector has seen
their gross NPAs was Rs. 7 lakh crore.

According to the securitization reconstruction of financial assets and enforcement of

security interest act 2002 defined Non- Performing Assets as “an asset or account of a
borrower which has been classified by a bank or financial institute as sub standard,
doubtful or loss asset, in accordance with the directions or guidelines relating to asset
classification issued by RBI”. Non- Performing assets shall be a loan or advance where
Interest and or installment or principal remain overdue for a period of more than 90 days
in respect of a term loan.

 The account remains ‘out of order’ for a period of more than 90 days in respect of
an overdraft/Cash credit.
  The bills remains overdue for a period of more than 90 days in case of bills
purchased and discounted.
 Interest 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
 Any amount to be received remains overdue for a period of more than 90 days in
respect of other.

Significance Of the study

Non- Performing asset has its own importance in the development of the banks.
Profitability and liquidity of the bank were directly affected by the non –performing asset
of the bank. The study of Non-Performing asset is highly important because it is one of
the crucial problems in the banking sector in India. This study is designed to know the
Non- Performing assets of scheduled commercial banks. In the current scenario it
becomes a pain not only for public sectors banks but also for private sector banks. Public
Sector banks provide around 80% of the credit to industries and it is this part of the credit
distribution that forms a great chunk of NPA. It is therefore necessary for the government
to frame policy to overcome with the problems of NPA.

Objectives of the Study

The research study has the following objectives which are as follows:

 To study the concept of non-performing assets

 To study the non –performing assets of scheduled commercial banks.

Limitations of the Study

This research study is based on certain limitations which are as follows

 This study is based on the secondary data collected from various published documents
and reports.
 The authenticity and reliability of data depends upon the published data

Research Methodology

This research study is based on the secondary data collected from various sources of
published documents such as bulletin of RBI, and other published reports of
Governments. This research study is micro in nature.

Analysis of Non –Performing Assets of scheduled commercial banks

This study mainly emphasis on the non performing assets of scheduled commercial
banks. In 2016 the Union Government has announced that the Non-Performing Assets
(NPA) of commercial banks have increased by around 4%. It adversely affects the value
of bank in terms of market credit and widens assets and liability mismatch. It results in
inflating the cost of capital for economic activities and banks may charge higher interest
rates on some products to compensate NPAs.
Table 1

Gross Advances and NPAs of Scheduled Commercial Banks

Gross Gross NPAs
Year Gross NPAs (%)
Advances (Amount)
2006-07 20125.1 504.86 2.5
2007-08 25078.85 563.09 2.3
2008-09 30382.54 683.28 2.3
2009-10 35449.65 846.98 2.4
2010-11 40120.79 979 2.5
2011-12 46488.08 1423.26 3.1
2012-13 59718.2 1935.09 3.2
2013-14 68757.48 2633.72 3.8
2014-15 75606.66 3233.35 4.3
2015-16 81673.45 6119.47 7.5
Source: rbi.org.in
This table shows the gross advances and gross NPAs of scheduled commercial banks. In
the year 2017 the percentage of gross net performing assets was 2.5 % but in the year
2009 the percentage was 2.3%. But after the year 2010 the percentage of gross
nonperforming assets was continuously rising. In the year 2016 the percentage of gross
Non- performing assets was 7.5% which is not good condition for the scheduled
commercial banks.

Table 2
Net Advances and NPAs of Scheduled Commercial Banks

Net Net NPAs

Year Net NPAs (%)
Advances (Amount)
2006-07 19812.37 201.01 1
2007-08 24769.36 247.3 1
2008-09 29999.24 315.64 1.1
2009-10 34970.92 387.23 1.1
2010-11 42987.04 417 1.1
2011-12 50735.59 650.19 1.3
2012-13 58797.73 986.09 1.7
2013-14 67352.13 1423.83 2.1
2014-15 73881.6 1758.41 2.4
2015-16 78964.67 3498.2 4.4
Source: rbi.org.in

Table 2 indicates the net advances and net non performing asset of the scheduled
commercial banks. In the year 2007 percentage of net non performing assets was 1 and in
the year 2008 it again remain 1. From 2009 to11 the percentage of non-performing assets
was 1.1%. In the year 2012 the percentage of non-performing assets was1.3% and it
continuously raising in the year 2016 it was 4.4%,
 Table 3
NPAs of Scheduled Commercial Banks Recovered through Various Channels

Lok SARFAESI
Sr No. Recovery Channel DRTs Total
year Adalats Act

1 No. of cases referred 840691 13408 190537 1044636

2012-13 2 Amount involved 66 310 681 1057

3 Amount recovered* 4 44 185 233

4 3 as per cent of 2 6 14 27 22

1 No. of cases referred 1636957 28258 194,707# 1859922

2 Amount involved 232 553 953 1738

2013-14
3 Amount recovered* 14 53 253 320

4 3 as per cent of 2 6 10 27 18

1 No. of cases referred 2958313 22004 175355 3155672

2 Amount involved 310 604 1568 2482

2014-15
3 Amount recovered* 10 42 256 308

4 3 as per cent of 2 3 7 16 12

1 No. of cases referred 4456634 24537 173582 4654753

2 Amount involved 720 693 801 2214

2015-16
3 Amount recovered* 32 64 132 228

4 3 as per cent of 2 4 9 17 10

1 No. of cases referred 2152895 28902 80076 2261873

2 Amount involved 1058 671 1131 2860

2016-17
3 Amount recovered* 38 164 78 280
4 3 as per cent of 2 4 24 7 10
Notes :1. *: Refers to amount recovered during the given year, which could be with reference
to cases referred during the given year as well as during the earlier years.

2. #: Number of Notices issued

3. DRTs- Debt Recovery Tribunals.

Table 3 highlights the non-performing assets of scheduled commercial bank recovered

through various channels. In the year 2012-13 the number of cases was 1044636. In the
year 2014 it was increased by 1859922 and again in the year 2015-16 it seems to be
increased but in the year 2017 it was declined by 2261873.