Non-Performing Assets: A Comparative Study ofSBI&ICICI

Bank from 2014-2017

INTRODUCTION

The Indian banking sector has undergone a drastic change and has evolved
considerably over several decades. While banks have increasingly become more and more
profitable in terms of higher revenues, attracting foreign capital and diversifying their
operations, they are also suffering from major issues such as compromised asset quality,
capital inadequacy and stressed balance sheets. This has affected the performance of the
banking sector and has raised questions about its sustainability. Today profit is a sign of
vitality and success in a competitive scenario. It ensures survival and growth and can
eventually become the only parameter for performance evaluation. NPA provisions are one of
the major determinants of profit. Hence, for a bank, NPA has become very significant.

OBJECTIVES
 To examine and compare the NPA trends of State Bank of India and ICICI for past four
years.
 To list the causes of the occurrence of NPA in both the banks.

 To compare the Total Advances, Net Profit, Gross NPA & Net NPA of State Bank of India
and ICICI BANK.

 To check whether there exist any linear relationship between Net profit and Net NPA in
case of both the banks.

LITERATURE REVIEW

Dr. Ganesan & R.Santhanakrishnan in their research paper „NON-

PERFORMING ASSETS: A STUDY OF STATE BANK OF INDIA‟ have made an
attempt to examine the non-performing assets of State Bank of India over the past 10 years
beginning from financial year 2002 to the financial year 2012. The researchers in this paper
aimed to study the sources of deployment of funds for the chosen bank. They examined the
gross and the net NPA of the bank and investigated the impact of NPA on the profitability of
the bank. They‟ve also suggested measures to improve NPA effectively in SBI.

They have made use of both primary and secondary data in this research. SBI Annual
reports and bulletins were made use of. The researchers have revealed the sources of working
funds for SBI which include deposits, borrowings, reserves and surpluses & share capital.
They‟ve analysed the trends of each of the source over the past 10 years. They have shown
the net and the gross NPA tables and it has been revealed that SBI‟s

management of gross NPA is spectacular. The gross NPA slipped down from 9 in 2002-03 to
2.8 in 2008-09 and according to international standards the gross NPA must not exceed 2 to
3%.

The paper‟s results and conclusion have been in favor of SBI as State Bank of India
has very well managed to keep its non- performing assets under control. This may be a result
of strict watch on various internal and external factors that could have hampered the overall
growth of the bank.

Vaibhavi Shah and Sunil Sharma in their research paper titles as A

COMPARATIVE STUDY OF NPA IN ICICI BANK AND HDFC BANKhave made an
attempt to study the non-performing assets of ICICI and HDFC bank. Since, both the banks
belong to the private sector of the Indian Banking industry, they aimed at comparing the
NPAs and hence the overall growth of the selected banks.

This paper aimed to know the operation of the bank in lending and credit policy and it
also suggested the steps that should be taken to reduce NPA for the banks. Next they gave the
introduction of NPA and detailed the reasons behind the rise in the NPAs.

They analyzed the gross and the net NPA of both the banks with the help of the table
and respective graphs. Comparison was based on the past 5 years from financial year 2010-11
to financial year 2014-15. Gross NPA for ICICI Bank was impressive as it managed to
maintain its NPA near to 3% according to international standards. On the other hand, HDFC‟s
performance was even better as its gross NPA values were near to 1% and net values of NPA
were all less than 1%. So, the researchers conclude the paper stating that although both the
banks are doing a great job, HDFC bank is doing exceptionally well.

D.JAYAKKODI in her research paper titled- A STUDY ON NON PERFORMING

ASSETS OF SELECT PUBLIC AND PRIVATE SECTOR BANKS IN INDIA aimed to
examine and compare the Gross NPAs and Net NPAs of select Public and Private Sector
Banks. This paper consists of four Public Sector Banks-State Bank of India, Punjab National
Bank, Bank of Baroda, Bank of India and four Private Sector Banks- ICICI Bank, HDFC
Bank, AXIS Bank, and federal Bank. The study is carried out on the basis of data for the
period of 5 years from 2010-11 to 2014-15. Various statistical tools namely mean, standard
deviation and coefficient of variance were used in the study.

It was realized that Public Sector Banks have higher NPA ratio as compared to Private Sector
Banks over the period of the study.

Gross and Net NPAs ratio has shown an increasing trend in selected Public Sector Banks over
the period of study.

It was observed that the Gross NPA ratio has shown a declining trend in Private Sector
Banks. It was observed that Net NPA ratio has shown an increasing trend in selected private
sector banks over the period of study.

Priyanka Mohnani and Monal Deshmukh, in their paper titled as A Study of Non-
Performing Assets on Selected Public and Private Sector Banks aimed to study the trends
in NPA Level and to highlight the NPAs position of selected PSB‟s and Private Banks. They
are also focused on assessing the comparative position of NPA in selected PSBs & Private
banks and to assess the variation of NPA ratio in selected PSBs & Private banks. Selected
PSBs are SBI & PNB, selected private banks are HDFC &ICICI bank. For their study, they
focused on secondary data and it has been collected using annual report of Reserve Bank of
India publication. In their study, measures of central tendency, frequency distribution,
Standard Deviations, coefficient of variation and test have been used to analyze and interpret
the data. Their study focused on examining the various aspects of NPAs in PSBs & Private
banks of India (selected banks). Their study covers the period from 2002-03 to 2011-2012. To
study NPA ratio variation data over the year 2011-2012 has been analyzed.

To be concluding, Gross NPAs ratio of PNB is less and it has been reduced over the
period in comparison to SBI. On the other side as far as Private Banks are concerned HDFC
has better performance in comparison to ICICI. So, it is very necessary for bank to keep the
level of NPA as low as possible. Because NPA is one kind of obstacle in the success of bank
and affects the performance of banks negatively so, for that the management of NPA in bank
is necessary.

V.R SINGH in his paper titled A Study of Non-Performing Assets of Commercial

Banks and its Recovery in India has aimed to study the status of Non-Performing Assets of
Indian Scheduled Commercial Banks in India and their impact on the banks. He also tried to
uncover the channels through which recovery of NPA can be done. He provided the readers
with some suggestions to manage NPA in near future effectively. The data collected is mainly
secondary in nature. Some of the major findings were

 NPAs as a Percentage of Net Advances which was lowest 1.0 % in 2007-08 & 2008-09
and highest 5.5 % in 2001-02. It was 2.2 % in 2013-14.
 The average Percentage of Net NPAs during 2001-02 to 2013-14 was around 2.0%.


 Ineffective recovery, willful defaults and Defective lending process are the important
factors which are
 responsible for the rise of NPAs in banks.

RESEARCH METHODOLOGY

The present study is based on secondary data analysis. The data has been collected from
various web sources like annual reports of respective banks, information bulletins and
journals.

For analyzing the data collected, correlation analysis using SPSS has been done and to
compare various parameters, charts and tables have been made use of.
Here, NPA is the independent variable and net profit is the dependent variable. So we see if
due to any changes in the net NPA, the net profits change or not, if yes, whether positively or
negatively.

DATA ANALYSIS

In the below section, various parameters related to NPA are compared and analyzed.
Firstly, the total advances, net profits, gross NPA and net NPAs have been compared for both
the banks.

YEAR TOTAL ADV. NET PROFIT GROSS NPA NET NPA

SBI ICICI SBI ICICI SBI ICICI SBI ICICI

2014 1,578,277 338,703 10,891 9,810 61,605 10,506 31,095 3,298

2015 1,692,211 387,522 13,102 11,175 56,725 15,095 27,591 6,256

2016 1,870,261 435,264 9,951 9,726 98,173 25,721 55,807 13,297

2017 1,896,887 464,232 10,484 9,801 112,343 13,297 58,277 25,451

Table-1

CONCEPTUAL FRAMEWORK
PROFILE OF SBI
The State Bank of India popularly known as SBI is one of the leading banks of India.
The State Bank Group, with over 16000 branches provides a wide range of banking products
in India and overseas, including products aimed at NRIs. Its headquarter is at Mumbai. SBI
has 14 Local Head Offices that are located at important cities throughout the country. It has
also 130 branches out of the country. It has a market share of about 20% in deposits and loans
among Indian commercial banks. The State Bank of India was constituted on 1st July 1955,
pursuant to the State Bank of India Act, 1955 for the purpose of creating a state -partnered
and state-sponsored bank. The State Bank of India's is largest bank with subsidiaries and joint
ventures outside India, including Europe, the United States, Canada, Mauritius, Nigeria,
Nepal, and Bhutan. The Bank has the largest retail banking customer base in India. Due to its
importance in Indian banking sector, SBI has been selected from amongst the public sector
banks for the present study.
PROFILE OF ICICI

ICICI Bank is major banking and financial services organization in India. It is the
second largest bank in India and the largest private sector bank in India by market
capitalization. Its headquarter is at Mumbai. The Bank has 2,533 branches and 6,800 ATMs in
India. The Bank offers a wide range of banking products and financial services to the
corporate and retail customers. It also provides services in the areas of venture capital
investment banking, asset management and life and non-life insurance. ICICI Bank's equity
shares are listed in India on Bombay Stock Exchange (BSE) and the National Stock
Exchange (NSE) and its American Depositary Receipts (ADRs) are also listed on the New
York Stock Exchange (NYSE). Due to its significant role in Indian banking sector, ICICI
Bank has been selected in the study from amongst the private sector banks.
CAMEL FRAMEWORK

In the 1980s, CAMEL rating system was first introduced by U.S. supervisory
authorities as a system of rating for on-site examination of banking institutions. This rating
ensures a bank’s healthy conditions by reviewing different aspects of a bank based on variety
of information sources such as financial statement, funding sources, macro-economic data,
budget and cash flow. In fact, CAMEL is an acronym for five components of bank safety and
soundness:

C - Capital Adequacy,


A - Asset Quality,


M - Management Efficiency,


E – Earnings Ability,


L – Liquidity position.

CAPITAL ADEQUACY-
It is an important parameter for a bank to conserve and protect stakeholders, confidence and
prevent the bank from bankruptcy. An institution’s capital adequacy depends on its growth
plans, interest and dividend practices, ability to control risks and economic environment.
Reserve Bank of India (RBI) prescribes banks to maintain minimum Capital to Risk
Weighted Assets Ratio (CRAR) of 9% with regard to credit risk, market risk and operational
risk on an ongoing basis, as against 8% prescribed in BASEL documents.
ASSET QUALITY-
It covers an institutional loan’s quality which reflects the earnings of the institution. It is an
indicator of healthiness of banks against loss of value in the assets as asset impairment risks
the solvency of banks. The asset quality is assessed with respect to the level of non-
performing assets, adequacy of provisions, distribution of assets etc. Asset quality is an
indicator of an institution’s investment policies and practices.

MANAGEMENT EFFICIENCY-
It refers to the capability of the management to ensure the safe operation of the institution as
it complies with the necessary internal and external regulations. It reflects the capability of
management to properly react to financial stress as well as to control and mitigate risks of the
institution’s daily activities.
EARNING QUALITY-
It represents the sustainability and growth of future earnings of an institution as well as its
competency to maintain quality and retain competitiveness. Earnings quality is determined by
assessing profitability, growth, stability, net interest margin, net worth level and the quality of
the institution’s existing assets.
LIQUIDITY POSITION-
It is a measure of an institution’s short-term solvency which enables it to procure sufficient
funds either by increasing liabilities or by converting its assets to cash quickly at a reasonable
cost. It is determined by assessing interest rate risk sensitivity, dependence on short-term
volatile resources and ALM technical competence.

DATA PRESENTATION AND ANALYSIS

PARAMETERS USED
Against the backdrop of CAMEL framework, the following parameters have been
used in this study to evaluate the performance of the respective banks under study:

Capital Adequacy Ratio = (Tier I Capital + Tier II Capital)/ Risk

weighted Assets Net NPA to Net Advances = Net NPA/Net
Advances X 100 Return on Assets = Net Profit/ Assets X 100

Return on Net Worth = Net Profit/ Net Worth X

100 Credit Deposit Ratio = Total Loans/ Total
 Deposits X 100 Debt Equity Ratio= Total Debt/
Shareholders Fund

Net Interest to Funds Ratio = (Int. Earned – Int. Expended) / Total

Funds X 100 Return on Equity = Return to equity shareholders/
Equity Shareholders Fund X 100 Current Ratio = Current Assets/
Current Liabilities Quick Ratio = Quick Assets/ Quick Liabilities
DATA ANALYSIS
Table I: Comparative Analysis of Capital Adequacy Ratio (CRAR)
Banks Ratio 2011-12 2012-13 2013-14 2014-15 2015-16 Mean
SBI CRAR (%) 13.86 12.92 12.96 12.00 13.12 12.97
ICICI CRAR (%) 18.50 18.70 17.70 17.00 16.60 17.70
Source: Annual Reports of SBI and ICICI from 2011-12 to 2015-16

Table I demonstrates that the Capital Adequacy Ratio (CRAR) of both the banks
under study are highly satisfactory and well above the standard set by RBI for Indian banks.
The highest CRAR of both SBI and ICICI were registered in the year 2011-12 and were
13.86% and 18.50% respectively, whereas the lowest CRAR of SBI was 12% in the year
2014-15 and that of ICICI was 16.60% in the year 2015-16. From the table, it is clear that the
mean CRAR of ICICI Bank (17.70%) is higher than that of SBI (12.97%) for the study
period, which implies that the CRAR of ICICI Bank is 4.73% more than that of SBI.
Table II: Comparative Analysis of Net NPA to Net Advances
Banks Ratio 2011-12 2012-13 2013-14 2014-15 2015-16 Mean
SBI Net NPA to Net Adv (%) 1.82 2.10 2.57 2.12 3.81 2.48
ICICI Net NPA to Net Adv (%) 0.73 0.77 0.97 1.61 2.98 1.41
Source: Annual Reports of SBI and ICICI from 2011-12 to 2015-16

The Net NPA to Net Advances (%) of SBI and ICICI Bank for the study period is
exhibited in Table II. Net NPA to Net Advances is an important parameter for determining the
capital adequacy and asset quality of the firm. It is a ratio of net Non-performing Assets
(NPA) to the Net Advances of an enterprise. The lower the Net NPA level to Net Advances
better is the coverage of risks from the perspective of banks. The highest Net NPA to Net
Advances of both SBI and ICICI were 3.81 and 2.98 respectively in the year 2015-16,
whereas the lowest Net NPA to Net Advances of SBI and ICICI was registered in the year
2015-16 and were 1.82% and
0.73% respectively. From the table, it is clear that the mean Net NPA to Net Advances of
ICICI Bank (1.41%) is lower than that of SBI (2.48%) for the study period, which implies
that ICICI Bank has lower level of Net NPA to Net Advances than that of SBI.
 Table III: Comparative Analysis of Return on Assets (%)
Banks Ratio 2011-12 2012-13 2013-14 2014-15 2015-16 Mean
SBI Return on Assets (%) 0.88 0.91 0.65 0.76 0.46 0.73
ICICI Return on Assets (%) 1.50 1.70 1.78 1.86 1.49 1.67
Source: Annual Reports of SBI and ICICI from 2011-12 to 2015-16

Return on Assets (%) of SBI and ICICI for the study period is exhibited in Table III.
Return on Assets is a measure of asset quality and management efficiency of an institution
and the higher the ratio, better is said to be the performance of the firm.

It is quite clear from this table that for both the banks under study, Return on Assets is
at a very low level. The highest Return on Assets (%) of SBI was 0.91% in 2012-13 and that
of ICICI was 1.86% in the year 2014-15, whereas the lowest Return on Assets (%) of both
SBI and ICICI was registered in the year 2015-16 and were 0.46% and 1.49% respectively. It
is also evident that the mean Return on Assets (%) of ICICI Bank (1.67%) is higher than that
of SBI (0.73%) for the study period, which implies that ICICI Bank scores over SBI in terms
of return on assets.
Table IV: Comparative Analysis of Return on Net Worth (%)
Banks Ratio 2011-12 2012-13 2013-14 2014-15 2015-16 Mean
SBI Return on Net Worth (%) 13.94 14.26 9.20 10.20 6.89 10.90
ICICI Return on Net Worth (%) 10.70 12.48 13.40 13.89 11.19 12.33
Source: Annual Reports of SBI and ICICI from 2011-12 to 2015-16

Table IV demonstrates that the Return on Net Worth (%) of both the banks under
study is fluctuating over the study period. Return on Net Worth is the ratio of net profit to the
net worth of an enterprise and is an important parameter in determining the profitability and
management efficiency of an enterprise. The higher the return on net worth better is the
performance of the enterprise.

From the table, it is clear that the highest Return on Net Worth of SBI i.e. 13.94% was
registered in the year 2011-12 whereas in case of ICICI Bank, the highest return on Net
Worth i.e. 13.89% was registered in the year 2014-15. The lowest return on Net Worth of SBI
was 6.89% in 2015-16 and in case of ICICI Bank, it was 10.70% in the year 2011-12. The
mean Return on Net Worth of ICICI Bank (12.33%) is higher than that of SBI (10.90%) for
the study period, which implies that ICICI Bank has scores over SBI in terms of Return on
Net Worth by 2.43%, indicating a superior performance on part of ICICI Bank over its
counterpart for the period under study.
 Table V: Comparative Analysis of Credit Deposit Ratio (%)
Banks Ratio 2011-12 2012-13 2013-14 2014-15 2015-16 Mean
SBI Credit Deposit Ratio (%) 82.14 85.17 86.64 84.47 83.56 84.40
ICICI Credit Deposit Ratio (%) 97.71 99.25 100.71 104.72 105.08 101.49
Source: Annual Reports of SBI and ICICI from 2011-12 to 2015-16

Table V exhibits the Credit Deposit Ratio (%) of both the banks for the last five years
from 2011-12 to 2015-16. Credit Deposit Ratio denotes the proportion of loan assets created
by a bank from the deposits received. The higher the credit deposit ratio, better is the
performance of bank.

It is clear from the table that the Credit Deposit Ratio of ICICI Bank is showing an
increasing trend, whereas in case of SBI, it is more or less stable throughout the study period.
The highest Credit Deposit Ratio of SBI was 86.64% in 2013-14 and that of ICICI was
105.08% in 2015-16 105.08%, whereas the lowest Credit Deposit Ratio of both SBI and
ICICI was registered in the year 2011-12 and were 82.14% and 97.71% respectively. It is also
evident from the table that the mean Credit Deposit Ratio of ICICI Bank (101.49%) is higher
than that of SBI (84.40%) for the study period, which implies that ICICI Bank has created
more loan assets from its deposits as compared to SBI.
Table VI: Comparative Analysis of Debt Equity Ratio
Banks Ratio 2011-12 2012-13 2013-14 2014-15 2015-16 Mean
SBI Debt Equity Ratio 13.94 13.87 13.34 13.87 13.55 13.71
ICICI Debt Equity Ratio 6.55 6.57 6.65 6.64 6.86 6.65
Source: Annual Reports of SBI and ICICI from 2011-12 to 2015-16

Debt Equity Ratio of SBI and ICICI Bank for the study period are exhibited in Table
VI. Debt Equity Ratio is a measure of the solvency and management efficiency of an
institution and is determined as the ratio of total debt to shareholders fund.

From the table, it is clear that both the banks have maintained a stable Debt Equity
Ratio over the period under study. The highest Debt Equity Ratio of SBI was 13.94 in 2011-
12 and in case of ICICI Bank, it was 6.86 in the year 2015-16, whereas the lowest Debt
Equity Ratio of SBI was 13.34 in 2013-14 and that of
INTERPRETATION OF THE TABLE

The table is comparing Total advances with NET Profit, Gross NPA & Net NPA of
SBI and ICICI Bank. With the help of this table we can get knowledge about growing
performance of both the banks. We can see that on one side total advances given by SBI and
ICICI Bank and Net Profits are increasing continuously since 2014, which shows that banks
are performing very well. But for SBI, Gross NPA & Net NPA is also increasing such that its
gross NPA in 2014 has been 61,605 and in 2017 it increased to 112,343. This shows that
SBI‟s performance is declining due to mismanagement of bank. ICICI bank shows the
similar trends as its gross and net NPAs are increasing as well since 2014.

But, if we observe carefully and compare the parameters for both the banks with each
other, we see that ICICI bank is performing much better as compared to SBI as in 2017 net
NPA for SBI is 58,277 and for ICICI bank its mere 25,451. Similarly, for Gross NPA, SBI
stands at 112,343 in 2017 and at the same time, ICICI is at 13.297.
Secondly, the examination of the NPA trends for both the banks for the last 4 years has
been done.

YEAR PERCENTAGE OF GROSS NPA

SBI ICICI

MARCH 2014 4.95 3.03

MARCH 2015 4.25 3.78

MARCH 2016 6.50 5.21

MARCH 2017 6.90 7.89

Table-2
PERCENTAGE OF GROSS NON-PERFORMING ASSET

10
ICICI
5
SBI
0

2014 2015 2016 2017

SBI ICICI
INTERPRETATION OF THE TABLE

The above table compares the values of gross NPA for both the banks- SBI and ICICI
bank. The x-axis show the years and on y-axis amount of gross NPA is measured. It is
observed that for 3 consecutive years-2014, 2015 and 2016, the performance of ICICI bank is
showing an upwards trend as compared to that of SBI. However, in 2017, the gross NPA
value of ICICI bank shot up to 4.98 whereas SBI improved from 3.71 in 2016 to 3.81 in
2017.

YEAR PERCENTAGE OF NET NPA

SBI ICICI

MARCH 2014 2.57 0.97

MARCH 2015 2.12 1.61

MARCH 2016 3.81 2.67

MARCH 2017 3.71 4.89

Table-3
PERCENTAGE OF NET NON-PERFORMING ASSETS

4
ICICI
2
SBI
0

2014 2015 2016 2017

SBI ICICI

Fig 2

INTERPRETATION OF THE TABLE

The above table compares the values of net NPA for both the banks- SBI and ICICI
bank. The x-axis show the years and on y-axis amount of net NPA is measured. It is observed
that for 3 consecutive years- 2014, 2015 and 2016, the performance of ICICI bank is showing
an upwards trend as compared to that of SBI. However, again in 2017, the net NPA value of
ICICI bank increased to 7.89, SBI being on 6.90. It is also seen that SBI has improved from
2016 to 2017, it has managed to reduce its non- performing assets whereas the condition of
ICICI bank has worsened.

Thirdly, we would analyze the relationship between Net profit and Net NPA in case of both
the banks.
HYPOTHESIS:
H0 - There is no linear relationship between Net Profit and
Net NPA; ƍ = 0 H1 - There is linear relationship between Net
Profit and Net NPA; ƍ ≠ 0

(For the current study, the testing of population correlation coefficient was used to either
reject or do not reject the null hypothesis. 5 % sig level was used, i.e. α/2 = 0.25)

STATE BANK OF INDIA

YEAR NET PROFIT NET NPA

MARCH 2014 10891 31095

MARCH 2015 13102 27591

MARCH 2016 9951 55807

MARCH 2017 10484 58277

Correlation coefficient = - 0.786

Descriptive Statistics
Mean Std. Deviation N
Net 11107.0000 1384.57527 4
 Profit
Net 43192.5000 16087.51129 4
NPA
Correlations
Net Profit Net NPA
Net Pearson Correlation 1 -.786
Profit
Sig. (2-tailed) .214

N 4 4

Net Pearson Correlation -.786 1

NPA
Sig. (2-tailed) .214

N 4 4

INTERPRETATION OF THE VALUE

The correlation coefficient between net profit and net NPA is -0.786 indicating the
negative relationship between the two i.e. a rise in the net NPA shall lead to a fall in the net
profits. It shows there is high negative correlation between the variables. In order to check if
this result is significant, we test the hypothesis stated above using a t-test. The test statistic is
given by:

T.S. - r n−2 ∼ n-2

1−r2
The test statistic so calculated came out to be 1.798 which lies in the acceptance region as the
critical value for the 2 tailed t- test was 4.303. Hence we do not sufficient evidence to reject
the null hypothesis. Hence we say that the correlation coefficient is not significant and there
is no significant linear relationship between the net profit and net NPA.
ICICI BANK

YEAR NET PROFIT NET NPA

MARCH 2014 9810 3298

MARCH 2015 11175 6256

MARCH 2016 9726 13297

MARCH 2017 9801 25451

Correlation coefficient = -0.39

INTERPRETATION OF THE VALUE

As we observe that the coefficient of correlation is equal to -0.39, it means that there
is a moderate degree of negative correlation between net profit and net NPA. The negative
correlation coefficient between net profit and net NPAs means an increase in net NPAs will
decrease net profit of the bank. It is a logical conclusion because profitability of a bank
depends upon the recovery of loans and existence of bad loan will jeopardize it. But to check
if this is a significant value and that if it applies to the population as well we test the
hypothesis. The test statistic came out to be 0.598 which lies in the acceptance region as the
critical value for the t-test is 4.303. Hence, we have no evidence to reject the null hypothesis.
So we can infer there is no significant linear relationship between net profits and net NPA for
ICICI bank.

Correlations

profit NPA
Pearson
Net Correlation 1 -.391
Profit Sig. (2-tailed) .609
N 4 4
Pearson
Net Correlation -.391 1
NPA Sig. (2-tailed) .609
N 4 4

Descriptive Statistics

Mean Std. Deviation N

Net
Profit 10125.7500 700.39293 4
Net
NPA 12075.5000 9854.05414 4

The insignificant correlation coefficients in case of both the banks may be due to the fact that
there are factors other than non-performing assets that impact the profitability of any bank.
Some of those factors are ROA (Return on Assets), ROE (Return on Equity), Capital
Adequacy Ratio, Net interest margins etc. There might be a case wherein the NPAs are rising
but the rise in net interest margins is more as compared to the rise in NPAs and hence the
impact of net interest margins is much stronger on the net profits of the bank.

CAUSES OF NPA
 One very important reason behind the rising NPA is the relaxed lending norms especially
for corporate honchos when their financial status and credit rating is not analyzed
properly.

 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.
 Public sector lending and extending loans in agriculture sector has a substantial
contribution to the rising NPAs of the banking industry.
 Inappropriate project handling, ineffective management, lack of adequate resources, day
to day changing govt. Policies produce industrial sickness. Hence, the banks finance those
industries that ultimately give them a low recovery of their loans reducing their profit and
liquidity.

NET NPA

Net NPAs are those type of NPAs in which the bank has deducted the provision regarding
NPAs. Net NPA shows the actual burden of banks. Since in India, bank balance sheets contain
a huge amount of NPAs and the process of recovery and write off of loans is very time
consuming, the banks have to make certain provisions against the NPAs according to the
central bank guidelines. It can be calculated by following:
CAUSES FOR NPA

The factors attributed for the cause of NPA may be divided into Internal and External factors.
Internal factors include improper credit appraisal, Lack of effective follow up, Willful
default/Fraud, Lack of post credit supervision, Absence of security, obsolete technology.
External factors include Natural calamities, Industrial sickness, and Labour problems of
borrowed firm.

FINDINGS
The following findings were drawn from the above data analysis:

The total advances have shown an upwards trend for both SBI and ICICI BANK.

Net profits for SBI have been fluctuating over the years whereas in case of ICICI bank it
has largely been consistent to around 9000 crore.

In the case of % Gross NPA, performance of public sector bank- SBI is doing better as
compared to private sector bank –ICICI bank.

In case of % net NPA also, performance of SBI is observed to be improving over the
years and hence creation of less non- performing assets as compared to ICICI bank.
Percentage net NPA for ICICI Bank is observed to be continuously rising.

The coefficient of correlation for SBI was found to be -0.78 that is high negative
correlation between net profit and net NPA of the bank. This means that as NPA is
increasing, the net profit will decrease.

Similarly, coefficient of correlation for ICICI bank was -0.39 that is moderate negative
correlation between net profit and net NPA.

The correlation coefficients were found to be insignificant i.e. there is no linear
relationship between the net profits and net NPA and there are other factors which impact
the net profits of the bank much strongly.

CONCLUSION

The management of nonperforming assets is a daunting task for every bank in the banking
industry. The very important reason and necessity for management of NPA is due to their
multi-dimensional effect on the operations, performance and position of bank. Results of
study shed light on the status of non-performing assets of SBI and ICICI Bank.

The present study concludes that non- performing assets is a biggest challenge faced
by both ICICI bank and State Bank of India as it leads to downfall in liquidity balance of the
banks and creates bad debts on them. Profitability is being affected due to the fluctuations in
NPA levels over the years. On comparing the two banks based on the effect on its
profitability, SBI has higher NPAs as compared to ICICI bank because of its public nature.
Since SBI is a public sector bank, it is more vulnerable to give up on the returns of the loans
extended to the general public. This is the reason for high NPAs in SBI. One other reason for
high NPAs can be a sharp rise in the provisioning of the bad loans. Besides rising NPA, SBI
has managed to keep its profits consistent, which depicts that the overall management of the
resources of the bank is partially better. On the other hand, the net NPAs for ICICI Bank are
continuously increasing since 2014 but as compared to SBI they are in a much better
condition. The profits of ICICI bank also did not experience any sharp rise or fall. The
correlation coefficient is -0.78 which depicts high degree of negative correlation. On the
other hand ICICI has a moderate degree of correlation i.e. -0.39. But since it was found that
these coefficients were insignificant, it widens the scope for further detailed studies by
identifying the impact of various other factors on profits of a bank.

SUGGESTIONS

 The banker should take utmost care by ensuring that the enterprise or business for which
a loan is sought is a sound one and the borrower is capable of carrying it out successfully,
he should be a person of high integrity, credibility and good character.

 The banks, instead of providing loans to small farmers, should make provisions to grant
them insurance policies for crop protection and income security.
 Government should make considerate level of investment on the upliftment of the farm
equipment so that multiple farmers can make use of those facilities and there need not be
any compulsion for the farmers to take loans in order to grow their crops.

 Banker should examine the balance sheet which shows the true picture of business will be
revealed on analysis of profit/loss a/c and balance sheet. While extending loans, banks
should examine the purpose of the loan. Banks must grant loan for productive purpose
only.

BIBLIOGRAPHY
[1]. Dr. D. Ganesan R.Santhanakrishnan, “Non-Performing Assets: A Study of State Bank of
India” Asia Pacific Journal of Research,

Volume: I, Issue: X, October 2013.

[2]. D.Jayakoddi and Dr.P.Rengarajan, “A Study on Non- performing Assets of selected
public and private sector banks in India” ,
 Intercontinental Journal of Finance Research Review ISSN: 2321-0354 - Online ISSN:
2347-1654 - Print – Impact of Factor: 1.552 VOLUME 4, ISSUE 9, and September
2016.

[3]. Vaibhavi Shah and Sunil Sharma, “A Comparative Study of NPA in ICICI Bank and
HDFC Bank”, Avinava national Monthly Referred Journal of Research in
Commerce and Management. Vol.5, Issue 2. Feb. 2016.
[4]. Dr. Biswanath Sukul, “Non-Performing Assets (NPAs): A Comparative Analysis of
Selected Private Sector Banks”, International

Journal of Humanities and Social Science Invention ISSN (Online): 2319 – 7722,
ISSN (Print): 2319 – 7714 www.ijhssi.org ||Volume 6 Issue 1||January. 2017 ||
PP.47-53.

Types of NPA

Gross NPA

Gross NPA is an advance which is considered irrecoverable, for bank has made provisions, and
which is still held in banks' books of account. Gross NPAs are the sum total of all loan assets that
are classified as NPAs as per RBI Guidelines as on Balance Sheet date. Gross NPA reflects the
quality of the loans made by banks. It consists of all the nonstandard assets like as sub-standard,
doubtful, and loss asset. It can be calculated with the help of following ratio:
Gross NPAs Ratio = Gross NPAs / Gross Advances

Net NPA

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