CHAPTER-1

INTRODUCTION

A Non-performing asset (NPA) is defined as a credit facility in respect of which the interest
and/or instalment of principal has remained ‘past due’ for a specified period of time. In simple
terms, an asset is tagged as non-performing when it ceases to generate income for the lender.
NPA is used by financial institutions that refer to loans that are in jeopardy of default the so
called NPA. Once the borrower has failed to make interest or principal payments for 90 days
the loan is considered to be the non-performing asset. Non-performing assets are problematic
for financial institutions since they depend on interest payments for income. Troublesome
pressure from the economy can lead to a sharp increase in NPLs and often results in massive
write-downs.

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
NPA, from the year ending March 31, 2004. Accordingly, with effect from March 31,2004, a
non-performing asset (NPA) is a loan or an advance where;

 Interest and/or instalment of principal remain overdue for a period of more than 91
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 (OD/CC),
 The bill remains overdue for a period of more than 90 days in the case of bills
purchased and discounted,
 Interest and/or instalment 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
purposes, and
 Any amount to be received remains overdue for a period of more than 90 days in
respect of other accounts.
 Non-submission of stock statements for 3 continuous quarters in case of cash credit
facility.
 No active transactions in the account (Cash credit/Overdraft/EPC/PCFC) for more
than 91 days.

NPAs result from what are termed “Bad Loans” or NPL. Default, in the financial parlance,
is the failure to meet financial obligations, say non-payment of a loan instalment. These
loans can occur due to the following reasons:
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  Usual banking operations/ bad lending practices.
 A banking crisis (as happened in USA, South Asia and Japan).
 Overhang component (due to environmental reasons, natural calamities, business
cycle, disease occurrence, etc.)
 Incremental component (due to internal bank management like credit policy, terms
of credit, etc.)

NPAs do not just reflect badly in a bank’s account books, they adversely impact the
national economy. Following are some of the repercussions of NPAs:

 Depositors do not get rightful returns and many times may lose uninsured deposits.
Banks may begin charging higher interest rates on some products to compensate
NPL losses.
 Bank shareholders are adversely affected.
 Bad loans imply redirecting of funds from good projects to bad ones. Hence, the
economy suffers due to loss of good projects and failure of bad investments.
 When bank do not get loan repayment or interest payments, liquidity problems
may ensue.

1.1 INDIAN BANKING SECTOR

Banking in India has its origin as early as the Vedic period. It is believed that the
transition from money lending to banking must have occurred even before Manu, the great
Hindu Jurist, who has devoted a section of his work to deposits and advances and laid
down rules relating to rates of interest. During the Mogul period, the indigenous bankers
played a very important role in lending money and financing foreign trade and commerce.
During the days of the East India Company, it was the turn of the agency houses to carry
on the banking business. The General Bank of India was the first Joint Stock Bank to be
established in the year 1786. The others which followed were the Bank of Hindustan and
the Bengal Bank. The Bank of Hindustan is reported to have continued till 1906 while the
other two failed in the meantime. In the first half of the 19th century the East India
Company established three banks; the Bank of Bengal in 1809, the Bank of Bombay in
1840 and the Bank of Madras in 1843. These three banks also known as Presidency Banks
were independent units and functioned well. These three banks were amalgamated in 1920
and a new bank, the Imperial Bank of India was established on 27thJanuary 1921. With
the passing of the State Bank of India Act in 1955 the undertaking of the Imperial Bank of
India was taken over by the newly constituted State Bank of India. The Reserve Bank

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 which is the Central Bank was created in 1935 by passing Reserve Bank of India Act
1934. In the wake of the Swadeshi Movement, a number of banks with Indian
management were established in the country namely, Punjab National Bank Ltd, Bank of
India Ltd, Canara Bank Ltd, Indian Bank Ltd, the Bank of Baroda Ltd, the Central Bank
of India Ltd. On July 19, 1969, 14 major banks of the country were nationalized and in
15th April 1980 six more commercial private sector banks were also taken over by the
government.

1.2 History of Banking in India

Ancient India

The Vedas (2000–1400 BCE) are earliest Indian texts to mention the concept of usury.
The word kusidin is translated as usurer. The Sutras (700–100 BCE) and the Jatakas (600–
400 BCE) also mention usury. Also, during this period, texts began to condemn
usury. Vasishtha forbade Brahmin and Kshatriya varnas from participating in usury. By
the 2nd century CE, usury seems to have become more
acceptable. The Manusmriti considers usury an acceptable means of acquiring wealth or
leading a livelihood. It also considers money lending above a certain rate, different ceiling
rates for different caste, a grave sin.

The Jatakas also mention the existence of loan deeds. These were
called rnapatra or rnapanna. The Dharmashastras also supported the use of loan
deeds. Kautilya has also mentioned the usage of loan deeds. Loans deeds were also
called rnalekhaya.

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

Medieval era

The use of loan deeds continued into the Mughal era and were called dastawez. Two types
of loans deeds have been recorded. The dastawez-e-indultalab was payable on demand
and dastawez-e-miadi was payable after a stipulated time. The use of payment orders by
royal treasuries, called barattes, have been also recorded. There are also records of Indian

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 bankers using issuing bills of exchange on foreign countries. The evolution of hundis, a
type of credit instrument, also occurred during this period and remain in use.

Colonial era

During the period of British rule merchants established the Union Bank of Calcutta in
1829, first as a private joint stock association, then partnership. Its proprietors were the
owners of the earlier Commercial Bank and the Calcutta Bank, who by mutual consent
created Union Bank to replace these two banks. In 1840 it established an agency at
Singapore, and closed the one at Mirzapore that it had opened in the previous year. Also
in 1840 the Bank revealed that it had been the subject of a fraud by the bank's accountant.
Union Bank was incorporated in 1845 but failed in 1848, having been insolvent for some
time and having used new money from depositors to pay its dividends.

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

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

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

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

The presidency banks dominated banking in India but there were also some exchange
banks and a number of Indian joint stock banks. All these banks operated in different

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

The period between 1906 and 1911 saw the establishment of banks inspired by
the Swadeshi movement. The Swadeshi movement inspired local businessmen and
political figures to found banks of and for the Indian community. A number of banks
established then have survived to the present such as Catholic Syrian Bank, The South
Indian Bank, Bank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara
Bank and Central Bank of India.

The fervour of Swadeshi movement led to the establishment of many private banks
in Dakshina Kannada and Udupi district, which were unified earlier and known by the
name South Canara (South Kanara) district. Four nationalised banks started in this district
and also a leading private sector bank. Hence undivided Dakshina Kannada district is
known as "Cradle of Indian Banking”.

Post-Independence

During 1938-46, bank branch offices trebled to 3,469 and deposits quadrupled to 962
crore. Nevertheless, the partition of India in 1947 adversely impacted the economies
of Punjab and West Bengal, paralysing banking activities for months.
India's independence marked the end of a regime of the Laissez-faire for the Indian
banking. The Government of India initiated measures to play an active role in the
economic life of the nation, and the Industrial Policy Resolution adopted by the
government in 1948 envisaged a mixed economy. This resulted in greater involvement of
the state in different segments of the economy including banking and finance. The major
steps to regulate banking included:

The Reserve Bank of India, India's central banking authority, was established in April
1935, but was nationalized on 1 January 1949 under the terms of the Reserve Bank of
India (Transfer to Public Ownership) Act, 1948 (RBI, 2005b).

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

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

Nationalisation in the 1969

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

Thereafter, her move was swift and sudden. The Government of India issued an ordinance
('Banking Companies (Acquisition and Transfer of Undertakings) Ordinance, 1969')
and nationalised the 14 largest commercial banks with effect from the midnight of 19 July
1969. These banks contained 85 percent of bank deposits in the country. Jayaprakash
Narayan, a national leader of India, described the step as a "masterstroke of
politicalsagacity." Within two weeks of the issue of the ordinance, the Parliament passed
the Banking Companies (Acquisition and Transfer of Undertaking) Bill, and it received
the presidential approval on 9 August 1969.

List of Banks Nationalised in 1969

 Allahabad bank
 Bank of Baroda
 Bank of India
 Bank of Maharashtra
 Central bank of India
 Canara bank
 Dena bank
 Indian bank
 Indian overseas bank
 Punjab national bank

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  Syndicate bank
 UCO bank
 Union bank
 United bank of India
 Nationalisation in the 1980

A second dose of nationalisation of 6 more commercial banks followed in 1980. The

stated reason for the nationalisation was to give the government more control of credit
delivery. With the second dose of nationalisation, the Government of India controlled
around 91% of the banking business of India. Later on, in the year 1993, the government
merged New Bank of India with Punjab National Bank.It was the only merger between
nationalised banks and resulted in the reduction of the number of nationalised banks from
20 to 19. Until the 1990s, the nationalised banks grew at a pace of around 4%, closer to
the average growth rate of the Indian economy.

List of Banks nationalised in 1980

 Punjab and Sind bank

 Vijaya bank
 Oriental bank of India
 Corporate bank
 Andhra bank
 New bank of India - (merged with PNB)

Liberalisation in the 1990s

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

The next stage for the Indian banking has been set up, with proposed relaxation of norms
for foreign direct investment. All foreign investors in banks may be given voting rights

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 that could exceed the present cap of 10% at present. It has gone up to 74% with some
restrictions.

The new policy shook the Banking sector in India completely. Bankers, till this time, were
used to the 4–6–4 method (borrow at 4%; lend at 6%; go home at 4) of functioning. The
new wave ushered in a modern outlook and tech-savvy methods of working for traditional
banks. All this led to the retail boom in India. People demanded more from their banks
and received more.

1.3 Banking Activities

 Retail banking, dealing directly with individuals and small businesses.

 Business banking, providing services to mid-market businesses.
 Corporate banking, directed at large business entities.
 Private banking, providing wealth management services to high net worth
individuals.
 Investment banking, activities in the financial markets, such as "underwrite"
(guarantee the sale of) stock and bond issues, trade for their own accounts, make
markets, and advise corporations on capital market activities like mergers and
acquisitions.
 Merchant banking is the private equity activity of investment banks
 Financial services, global financial institutions that engage in multiple activities
such as banking and insurance.

1.4 Public Sector Banks

PSBs are banks where a majority stake (i.e. more than 50%) is held by a government. The
shares of these banks are listed on stock exchanges. There are a total of 27 PSBs in India
[21 nationalized banks + 6 State bank group (SBI + 5 associates)]. In 2011 IDBI bank and
in 2014 BharatiyaMahila Bank were nationalized with a minimum capital of Rs 500 cr.

Emergence of public sector banks

The Central Government entered the banking business with the nationalization of the
Imperial Bank of India in 1955. A 60% stake was taken by the Reserve Bank of India and
the new bank was named as the State Bank of India. The seven other state banks became
the subsidiaries of the new bank when nationalised on 19 July 1960. The next major
nationalisation of banks took place in 1969 when the government of India, under Prime
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 Minister Indira Gandhi, nationalised an additional 14 major banks. The total deposits in
the banks nationalised in 1969 amounted to Rs.50 crores. This move increased the
presence of nationalised banks in India, with 84% of the total branches coming under
government control

The next round of nationalisation took place in April 1980. The government nationalised
six banks. The total deposits of these banks amounted to around Rs.200 crores. This move
led to a further increase in the number of branches in the market, increasing to 91% of the
total branch network of the country. The objectives behind nationalisation were:

 To break the ownership and control of banks by a few business families,

 To prevent the concentration of wealth and economic power,
 To mobilize savings from masses from all parts of the country,
 To cater to the needs of the priority sectors.

Total public sector banks are 27 including IDBI and BMB

Some Public Sector Banks are which comprises nationalized banks and SBI and its
associates are shown in the table.

Nationalized Banks

Table 1: List of Nationalized Banks

Sr. No. Names

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
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 13 Punjab National Bank
14 Punjab & Sind Bank
15 Syndicate Bank
16 Union Bank of India
17 United Bank of India
18 UCO Bank
19 Vijaya Bank
20 IDBI Bank Ltd
21 Bharatiya Mahila Bank

Table 2: List of State Bank of India & its Associates

Sr. No. Names

1 State Bank of Bikaner & Jaipur
2 State Bank of Patiala
3 State Bank of Hyderabad
4 State Bank of Mysore
5 State Bank of Travancore

Note: - Now all these SBI Associates are merged in SBI. So now there are only 22 Public
Sector Banks.

1.5 Private Sector Banks

The private-sector banks in India represent part of the Indian banking sector that is made up of
both private and public sector banks. The "private-sector banks" are banks where greater parts
of state or equity are held by the private shareholders and not by government.
Banking in India has been dominated by public sector banks since the 1969 when all major
banks were nationalised by the Indian government. However, since liberalisation in
government banking policy in the 1990s, old and new private sector banks have re-emerged.
They have grown faster & bigger over the two decades since liberalisation using the latest
technology, providing contemporary innovations and monetary tools and techniques.
The private sector banks are split into two groups by financial regulators in India, old and new.
The old private sector banks existed prior to the nationalisation in 1969 and kept their
independence because they were either too small or specialist to be included in nationalisation.

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 The new private sector banks are those that have gained their banking license since the
liberalisation in the 1990s.

Old Private Sector Bank

The banks, which were not nationalized at the time of bank nationalization that took place
during 1969 and 1980, are known to be the old private-sector banks. These were not
nationalized, because of their small size and regional focus. Most of the old private-sector
banks are closely held by certain communities their operations are mostly restricted to the
areas in and around their place of origin. Their Board of directors mainly consist of locally
prominent personalities from trade and business circles. One of the positive points of these
banks is that, they lean heavily on service and technology and as such, they are likely to attract
more business in days to come with the restructuring of the industry round the corner.

New Private Sector Bank

The banks, which came in operation after 1991, with the introduction of economic reforms
and financial sector reforms are called "new private-sector banks". Banking regulation act
was then amended in 1993, which permitted the entry of new private sector banks in the
Indian banking sector. However, there were certain criteria set for the establishment of the
new private-sector banks, some of those criteria being: The bank should have a minimum
net worth of Rs. 200crores.

1.6 NON-PERFORMING ASSETS (NPA)

The three letters “NPA” strike terror in banking sector and business circle today.NPA is a
short form of “Non-Performing Assets”.
In banking, NPA are loans given to doubtful customers who may or may not repay the
loan on time. There are two types of assets viz. performing and non-performing.
Performing loans are standard loans on which both the principle and interest are secured
and their return is guaranteed.
Non Performing assets means the debt which is given by the Bank is unable to recover it
is called NPA .Non- Performing Asset [NPA] is a result of asset Liability mismatch, A
NPA account in the books of accounts is an asset as it indicates the amount receivable
from the Defaulters. It means if any bank gives loan to the customer if the interest for that
loan is not paid by the customer till 90 days then that account is called as NPA account.
A loans or leases that are not meeting its stated principal and interest payments are
considered to be bad. Banks usually classify as nonperforming assets any commercial
loans which are more than 90 days overdue and any consumer loans which are more than
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 180 days overdue. More generally, an asset which is not producing income becomes non-
performing.

Definitions
An asset, including a leased asset, becomes Non-Performing when it ceases to generate
income for the bank.
A non-performing asset’ (NPA) was defined as a credit facility in respect of which the
interest and/or instalment of principal has remained ‘past due’ for a specified period of
time. The specified period was reduced in a phased manner as under:
w.e.f 31.03.1993 : four quarters
w.e.f 31.03.1994 : three quarters
w.e.f 31.03.1995 : two quarters
w.e.f 31.03.2001 : 180 days
w.e.f 31.03.2004 : 90 days
With the effect from March 31, 2004, NPA shall be a loan or an advance where:
 Term loan: Interest and /or instalment of principal remain over due for a period of
more than 90 days.
 Cash credit/overdraft: The account remains ‘out of order’ for a period of more
than 90days.
 Bills: The bill remains overdue for a period of more than 90days from due date of
payment.
 Other Loans: Any amount to be received remains overdue for a period of more
than 90days.
 Agricultural Accounts: In the case of agriculture advances, where repayment is
based on income from crop. An account will be classified as NPA as under:
 If loan has been granted for short duration crop: interest and/or instalment of
Principal remains overdue for two crop seasons beyond the due date.
 If loan has been granted for long duration crop: Interest and/or instalment of
principal remains overdue for one crop seasons beyond due date.
Non-Performing Asset is defined as the loans which are in jeopardy of being default. If a
borrower has failed to pay interest on principal payment for 90 days or more in case of a
loan, than that loan is considered to be non-performing asset (NPA).This kind of thing can
be termed as Non-Performing Loan. NPAs affect the smooth flow of credit and
profitability as higher NPAs mean higher provisioning which reduces s the profit. These
are loans and advances whose time period for payment of interest and principle has
exceeded 90 days. In this case the account of person is marked as out of order. If the loan
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 is granted to a person for agricultural purpose the instalment period for interest might
remain due for two harvest seasons. Non-performing assets tells us about the banks as the
institutions of finance and companies judge their non-performing assets through NPA and
higher the NPA means bad performance of the institute of finance.

1.7 NPA as Defined by RBI

Any asset and it also includes leased asset can become Non Performing Asset when
income stops to be generated from it for the bank. It is an advance or loan where;
1) For 90 days’ time interest or instalment of principle amount may remain overdue.
2) The account an overdraft or cash credit with respect of it may remain out of order
as it is indicated below.
3) In case the bills are purchased or discounted then they remain overdue for more
than 90days period.
4) The instalment for two of the crop seasons for short duration of crops remains
overdue whether it is principal or interest. The instalment for long duration crops
therefore remains overdue whether its interest or principal amount.
5) The instalment therefore remains overdue for one crop season for long duration
crops of principal or interest.
6) In respect of a securitization transaction that has been undertaken like in terms of
guidelines on securitization on dated February 1, 2006. For more than 90 days the
amount of which like of liquidity facility will remain outstanding.
A debt obligation where the borrower has not paid any previously agreed upon interest
and principal repayments to the designated lender for an extended period of time. The
nonperforming asset is therefore not yielding any income to the lender in the form of
principal and interest payments.
For example, a mortgage in default would be considered non-performing. After a
prolonged period of non-payment, the lender will force the borrower to liquidate any
assets that were pledged as part of the debt agreement. If no assets were pledged, the
lenders might write-off the asset as a bad debt and then sell it at a discount to a collections
agency.
An asset becomes non-performing when it ceases to generate income for the bank. A
nonperforming asset (NPA) is defined generally as a credit facility in respect of which
interest and / or instalment of principal has remained “past due” for two quarters or more.
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. It was, however, decided to dispense with “past due”.

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 Banks should, classify an account as NPA only if the interest charged during any quarter
is not serviced fully within 90 days from the end of the quarter.

1.8 Classification of Assets

1. Standard Assets
Standard asset is one which does not disclose any problem and which does not carry more
than normal risk attached to business. Thus, in general, all the current loans, agricultural
and non-agricultural loans which have not become NPA may be treated as standard asset.

2. Sub-Standard Assets
A Non-performing asset may be classified as sub-standard on the basis of the following
criteria. (a) An asset which has remained overdue for a period not exceeding 3 years in
respect of both agricultural and non-agricultural loans should be treated as substandard.
(b) In case of all types of term loans, where instalments are overdue for a period not
exceeding 3 years, the entire outstanding in term loan should be treated as sub-standard.
(c) An asset, where the terms and conditions of the loans regarding payment of interest
and repayment of principal have been renegotiated or rescheduled, after commencement
of production, should be classified as sub-standard and should remain so in such category
for at least one year of satisfactory performance under the renegotiated or rescheduled
terms. In other words, the classification of an asset should not be upgraded merely as a
result of rescheduling unless there is satisfactory compliance of the above condition.

3. Doubtful Asset
A Non-Performing Asset may be classified as doubtful on the basis of following criteria:
As asset which has remained overdue for a period exceeding 3 years in respect of both
agricultural and non-agricultural loans should be treated as doubtful. In case of all types of
term loans, where instalments are overdue for more than 3 years, the entire outstanding in
term loan should be treated as doubtful. As in the case of sub-standard assets, rescheduling
does not entitle a bank to upgrade the quality of advance automatically.

4. Loss Asset
Loss assets are those where loss is identified by the bank/ auditor/ RBI/ NABARD
inspectors but the amount has not been written off wholly or partly. In other words, an
asset which is considered unrealizable and/ or of such little value that its continuance as a
doubtful asset is not worthwhile, should be treated as a loss asset. Such loss assets will
include overdue loans in cases (a) where decrease or execution petitions have been time
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 barred or documents are lost or no other legal proof is available to claim the debt, (b)
where the members and their sureties are declared insolvent or have died leaving no
tangible assets, (c) where the members have left the area of operation of the society (refers
to the borrower in whose name the respective Loan Account with SCB/ CCB) leaving no
property and their sureties have also no means to pay the dues (d) where the loan is
fictitious or when gross mis-utilisation is noticed, and (e) amounts which cannot be
recovered in case of liquidated societies.

1.9 Types of NPA

1. Gross NPA
2. Net NPA

1. Gross NPA:
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 non standard assets like as sub-standard, doubtful, and loss
assets.
It can be calculated with the help of following ratio.

Gross NPAs= Gross NPAs

Gross Advances
2. 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 provisions the banks have to make against the NPAs according to the
central bank guidelines, are quite significant. That is why the difference between gross
and net NPA is quite high.
It can be calculated by following.

Net NPAs= Gross NPAs-Provisions

Gross Advances-Provisions

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 1.10 Reasons for Assets Becoming NPA
A several factors are responsible forever increasing size of NPAs in PSBs. The Indian
banking industry has one of the highest percents of NPAs compared to international
levels. A few prominent reasons for assets becoming NPAs are as under:
 Lack of proper monitoring and follow-up measures.
 Lack of sincere corporate culture.
 Inadequate legal provisions on foreclosure and bankruptcy.
 Change in economic policies/environment.
 Non transparent accounting policy and poor auditing practices.
 Lack of coordination between banks/FIs.
 Directed landing to certain sectors.
 Failure on part of the promoters to bring in their portion of equity from their own
sources or public issue due to market turning unfavourable.
 Classification of agricultural and non-agricultural loans is required to be done.

1.11 Reason for NPA

An internal study conducted by RBI shows that in the order of prominence, the following
factor contribute to NPAs.
Internal Factor
 Diversion of funds for
 Expansion/diversification /modernization
 Taking up new project
 Helping /promoting associate concerns time/cost overrun during the project
implementation stage
 Business Failure
 Inefficiency in management
 Slackness in credit management and monitoring
 Inappropriate Technology/technical problem
 Lack of coordination among lenders
External Factor
 Recession
 Input/power storage
 Price escalation
 Exchange rate fluctuation
 Accidents and natural calamities, etc.
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  Changes in government policies in excise/ import duties, pollution control orders,
etc.
Other Factors
 Liberalization of economy/removal of restriction/reduction of tariffs:-A large
number of NPA borrowers were unable to compete in a competitive market in
which lower prices and greater choices were available to consumers. Further,
borrowers operating in specific industries have suffered due to political, fiscal and
social compulsions, compounding pressures from liberalization.
 Lax monitoring of credit and failure to recognize Early Warnings Signals:-It
has been stated that approval of loan proposal is generally thorough and each
proposal passes through many levels before approval is granted. However, the
monitoring of sometimes complex credit files has not received the attention it
needed which meant that early warning signals were not recognized and standard
assets slipped to NPA category without banks being able to take proactive
measures to prevent this. Partly due to this reason, adverse trends in borrower’s
performance were not noted and the position further deteriorated before action was
taken.
 Over optimistic promoters:-Promoters were often optimistic in setting up large
projects and in some cases were not fully above board in their intentions.
Screening procedures did not always highlight these issues. Often projects were set
up with the expectation that part of the funding would be arranged from the capital
markets which were booming at the time of the project appraisal. When the capital
markets subsequently crashed, the requisite funds could never be raised, promoter
often lost interest and lenders were left stranded with incomplete/unviable projects.
 Directed lending:-Loans to some segment were dictated by Governments policies
than commercial imperatives.
 Highly Leveraged borrowers:-Some borrowers were undercapitalized and over
burdened with debt to absorb the changing economic situation in the country.
Operating within a protected marked resulted economic situation in the country.
Operating within a protected market resulted in low appreciation of
commercial/market risk.
 Funding mismatch:-There are said to be many cases where loans granted for
short terms were used to fund long term transactions.
 High Cost of Funds:-Interest rates as high as 20% were not uncommon. Coupled
with high leveraging and falling Denmark, borrowers could not continue to service
high cost debt.
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  Wilful Defaulters:-There are a number of borrowers who have strategically
defaulted on their debt service obligation realizing that the legal resource available
to creditors is slow in achieving results.

1.12 Impact of NPA

1. Profitability:
NPA means booking of money in terms of bad asset, which occurred due to wrong choice
of client. Because of the money getting blocked the prodigality of bank decreases not only
by the amount of NPA but NPA lead to opportunity cost also as that much of profit
invested in some return earning project/asset. So NPA doesn’t affect current profit but also
future stream of profit, which may lead to loss of some long-term beneficial opportunity.
Another impact of reduction in profitability is low ROI (return on investment), which
adversely affect current earning of bank.
2. Liquidity:
Money is getting blocked, decreased profit lead to lack of enough cash at hand which lead
to borrowing money for shortest period of time which lead to additional cost to the
company. Difficulty in operating the functions of bank is another cause of NPA due to
lack of money, routine payments and dues.
3. Involvement of management:
Time and efforts of management is another indirect cost which bank has to bear due to
NPA. Time and efforts of management in handling and managing NPA would have
diverted to some fruitful activities, which would have given good returns. Now day’s
banks have special employees to deal and handle NPAs, which is additional cost to the
bank.
4. Credit loss:
Bank is facing problem of NPA then it adversely affect the value of bank in terms of
market credit. It will lose its goodwill and brand image and credit which have negative
impact to the people who are putting their money in the banks.

1.13 NPA Rules for Bank

General Rules
 In line with the international practices and as per the recommendations made by
the committee on Financial system (Chairman Shri M. Narasimham), the Reserve
Bank of India has introduced, in a phased manner, prudential norms for income
recognition, asset classification and provisioning for the advances portfolio of the

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 banks so as to move towards greater consistency and transparency in the published
accounts.
 The policy of income recognition should be objective and based on record of
recovery rather than on any subjective considerations. Likewise, the classification
of assets of banks has to be done on the basis of objective criteria which would
ensure a uniform and consistent application of norms. Also, the provisioning
should be made on the basis of classification of assets based on the period for
which the asset has remained non – performing / overdue as also availability of
security and its realizable value.

1.14 Norms for Treating Loans/Advances as NPA

1. Treatment of agricultural advances:-
In respect of advances granted for agricultural purposes where interest payment is on half-
yearly basis synchronizing with harvest, banks should adopt the agricultural season as the
basis. In other words, if interest has not been paid during the last two seasons of harvest
(covering two half-years) after the principal has become overdue then such an advance
should be treated as NPA. This norm is applicable to all direct agricultural advances listed
in the Annexure. In respect of agricultural advances other than those specified in the
Annexure, identification of NPA would be done on the same basis as non-agricultural
advances which at present are the 180 days delinquency norm. Crop loans for each season,
viz., Rabi and Kharif has to be treated as separate account and IRAC norms have to be
applied accordingly.
2. Treatment of advances for allied agricultural activities as well as non farm sector:-
Credit facilities granted for other allied agricultural activities as well as for non-farm
sector activities should be treated as NPA if amounts of instalments of principal and / or
interest remain outstanding for a period of two quarters from the due date.
3. Project / Housing Loans, etc
In case of projects (industry, plantation, etc.) where moratorium is given for payment,
[loan becomes due only after moratorium or gestation period is over] such a loan becomes
overdue if instalment is not paid on due date. Similarly, in the case of housing loans or
similar advances granted to staff members where interest is payable after recovery of
principal, such loans should be classified as NPA when there is a default in repayment of
principal on due date of payment and overdue criteria will be the basis for classification of
assets.

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 4. Consortium advances
In respect of consortium advances each bank is required to classify the borrowable
accounts according to its own recovery i.e., on the record of recovery of the individual
member banks. The banks participating in the consortium should therefore, arrange to get
their share of recovery transferred from the lead bank of the consortium.
5. Treatment of different facilities to borrower as overdue (NPA)
Short-term agricultural advances are granted by SCBs / CCBs to CCBs PACS respectively
for the purpose of on-lending. In respect of such advances as well as advances for other
purposes, if any, granted under on-lending system, only that particular facility which
became irregular should be treated as NPA and not all the other facilities granted to them.
Crop loans for each season, viz., Rabi and Kharif have to be treated as separate account
and accordingly IRAC norms have to be applied. In respect of all other direct loans and
advances granted to a borrower, all such loans will become NPA even if one loan A/c
becomes NPA.
6. ‘Out of order status’
In respect of cash credit / over draft facility 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 six
months as on the date of Balance Sheet or credits are not enough to cover the interest
debited during the same period, these accounts should be treated as “out of order”.
7. ‘Overdue’
Any amount due to the bank under any credit facility is “overdue”, if it is not paid on due
date fixed by the bank.
8. Performance of the account as on the date of Balance Sheet
The performance of the account as on the date of Balance Sheet only has to be taken into
account for the purpose of NPA. Subsequent developments should not be considered for
determining NPAs. If interest and / or instalment of principle have remained unpaid for
any two quarters out of the four quarters ending 31 March of the year concerned, the
credit facility should be treated as NPA although the default may not be continuously for
two quarters during the year.

1.15 Early Symptoms

By which one can recognize a performing asset turning in to non-performing asset Four
categories of early symptoms:-

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 Financial:
 Non-payment of the very first instalment in case of term loan.
 Bouncing of cheque due to insufficient balance in the accounts.
 Irregularity in instalment.
 Irregularity of operations in the accounts.
 Unpaid overdue bills.
 Declining Current Ratio.
 Payment which does not cover the interest and principal amount of that instalment.
 While monitoring the accounts it is found that partial amount is diverted to sister
concern or parent company.
Operational and Physical:
 If information is received that the borrower has either initiated the process of
winding up or are not doing the business.
 Overdue receivables.
 Stock statement not submitted on time.
 External non-controllable factor like natural calamities in the city where borrower
conduct his business.
 Frequent changes in plan.
 Non payment of wages.
Attitudinal Changes:
 Use for personal comfort, stocks and shares by borrower.
 Avoidance of contact with bank.
 Problem between partners.
Others:
 Changes in Government policies.
 Death of borrower.
 Competition in the market.

1.16 Preventive Measurement for NPA

1. Early Recognition of the Problem:
Invariably, by the time banks start their efforts to get involved in a revival process, it’s too
late to retrieve the situation- both in terms of rehabilitation of the project and recovery of
bank’s dues. Identification of weakness in the very beginning that is: When the account
starts showing first signs of weakness regardless of the fact that it may not have become
NPA, is imperative. Assessment of the potential of revival may be done on the basis of a
techno-economic viability study. Restructuring should be attempted where, after an
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 objective assessment of the promoter’s intention, banks are convinced of a turnaround
within a scheduled timeframe. In respect of totally unviable units as decided by the bank,
it is better to facilitate winding up/ selling of the unit earlier, so as to recover whatever is
possible through legal means before the security position becomes worse.
2. Identifying Borrowers with Genuine Intent:
Identifying borrowers with genuine intent from those who are non- serious with no
commitment or stake in revival is a challenge confronting bankers. Here the role of
frontline officials at the branch level is paramount as they are the ones who have
intelligent inputs with regard to promoters’ sincerity, and capability to achieve turnaround.
Based on this objective assessment, banks should decide as quickly as possible whether it
would be worthwhile to commit additional finance.
In this regard banks may consider having “Special Investigation” of all financial
transaction or business transaction, books of account in order to ascertain real factors that
contributed to sickness of the borrower. Banks may have penal of technical experts with
proven expertise and track record of preparing techno-economic study of the project of the
borrowers.
Borrowers having genuine problems due to temporary mismatch in fund flow or sudden
requirement of additional fund may be entertained at branch level, and for this purpose a
special limit to such type of cases should be decided. This will obviate the need to route
the additional funding through the controlling offices in deserving cases, and help avert
many accounts slipping into NPA category.
3. Timeliness and Adequacy of response:
Time is a crucial element in any restructuring or rehabilitation activity. The response
decided on the basis of techno-economic study and promoter’s commitment, has to be
adequate in terms of extend of additional funding and relaxations etc. under the
restructuring exercise. The package of assistance may be flexible and bank may look at
the exit option.
4. Focus on Cash Flows:
While financing, at the time of restructuring the banks may not be guided by the
conventional fund flow analysis only, which could yield a potentially misleading picture.
Appraisal for fresh credit requirements may be done by analyzing funds flow in
conjunction with the Cash Flow rather than only on the basis of Funds Flow.
5. Management Effectiveness:
The general perception among borrower is that it is lack of finance that leads to sickness
and NPAs. But this may not be the case all the time. Management effectiveness in tackling
adverse business conditions is a very important aspect that affects a borrowing unit’s

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 fortunes. A bank may commit additional finance to an align unit only after basic viability
of the enterprise also in the context of quality of management is examined and confirmed.
Where the default is due to deeper malady, viability study or investigative audit should be
done – it will be useful to have consultant appointed as early as possible to examine this
aspect. A proper techno- economic viability study must thus become the basis on which
any future action can be considered.
6. Multiple Financing:
A. During the exercise for assessment of viability and restructuring, a Pragmatic and
unified approach by all the lending banks/ FIs as also sharing of all relevant information
on the borrower would go a long way toward overall success of rehabilitation exercise,
given the probability of success/failure.
B. In some default cases, where the unit is still working, the bank should make sure that it
captures the cash flows(there is a tendency on part of the borrowers to switch bankers
once they default, for fear of getting their cash flows forfeited), and ensure that such cash
flows are used for working capital purposes. Toward this end, there should be regular flow
of information among consortium members. A bank, which is not part of the consortium,
may not be allowed to offer credit facilities to such defaulting clients. Current account
facilities may also be denied at non-consortium banks to such clients and violation may
attract penal action. The Credit Information Bureau of India Ltd. (CIBIL)may be very
useful for meaningful information exchange on defaulting borrowers once the setup
becomes fully operational.
C. In a forum of lenders, the priority of each lender will be different. While one set of
lenders may be willing to wait for a longer time to recover its dues, another lender may
have a much shorter timeframe in mind. So it is possible that the letter categories of
lenders may be willing to exit, even a t a cost – by a discounted settlement of the
exposure. Therefore, any plan for restructuring/rehabilitation may take this aspect into
account.
D. Corporate Debt Restructuring mechanism has been institutionalized in 2001 to provide
a timely and transparent system for restructuring of the corporate debt of Rs.20crore and
above with the banks and FIs on a voluntary basis and outside the legal framework. Under
this system, banks may greatly benefit in terms of restructuring of large standard accounts
(potential NPAs) and viable sub-standard accounts with consortium/multiple banking
arrangements.

1.16 NPA Management Practices In India

 Formation of the Credit Information Bureau (India) Limited (CIBIL)
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  Release of Wilful Defaulter’s List. RBI also releases a list of borrowers with
aggregate outstanding of Rs.1crore and above against whom banks have filed suits
for recovery of their funds
 Reporting of Frauds to RBI
 Norms of Lender’s Liability – framing of Fair Practices Code with regard to
lender’s liability to be followed by banks, which indirectly prevents accounts
turning into NPAs on account of bank’s own failure
 Risk assessment and Risk management.
 RBI has advised banks to examine all cases of wilful default of Rs.1crore and
above and file suits in such cases. Board of Directors are required to review NPA
accounts of Rs.1crore and above with special reference to fixing of staff
accountability.
 Reporting quick mortality cases.
 Special mention accounts for early identification of bad debts. Loans and advances
overdue for less than one and two quarters would come under this category.
However, these accounts do not need provisioning.

1.17 Measures Initiated by RBI and Government of India for Reduction

of NPA’s
1. Compromise settlement schemes:
The RBI / Government of India have been constantly goading the banks to take steps for
arresting the incidence of fresh NPAs and have also been creating legal and regulatory
environment to facilitate the recovery of existing NPAs of banks. More significant of
them, I would like to recapitulate at this stage.
The broad framework for compromise or negotiated settlement of NPAs advised by RBI
in July 1995 continues to be in place. Banks are free to design and implement their own
policies for recovery and write-off incorporating compromise and negotiated settlements
with the approval of their Boards, particularly for old and unresolved cases falling under
the NPA category. The policy framework suggested by RBI provides for setting up of an
independent Settlement Advisory Committees headed by a retired Judge of the High Court
to scrutinize and recommend compromise proposals.
Specific guidelines were issued in May 1999 to public sector banks for onetime non-
discretionary and non-discriminatory settlement of NPAs of small sector. The scheme was
operative up to September 30, 2000. [Public sector banks recovered Rs. 668crore through
compromise settlement under this scheme.]

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 Guidelines were modified in July 2000 for recovery of the stock of NPAs of Rs. 5crore
and less as on 31 March 1997. [The above guidelines which were valid up to June 30,
2001 helped the public sector banks to recover Rs. 2600crore by September 2001]
An OTS Scheme covering advances of Rs.25000 and below continues to be in operation
and guidelines in pursuance to the budget announcement of the Honourable Finance
Minister providing for OTS for advances up to Rs.50000 in respect of NPAs of
small/marginal farmers are being drawn up.
Negotiating for compromise settlements:
The first crucial step towards meaningful NPA management is to accept that recoveries
are one's own responsibility. To keep the Bank's operating cycle going smoothly, it is
essential that this realization of one's duties be transformed into deeds by resorting to
various methods of recovery.
Of the various methods available for NPA Management, Compromise Settlements are the
most attractive, if handled in a professional manner.
Advantages:
1. Saves money, time and manpower
Banks are mainly concerned with recovery of dues, to the maximum possible extent, at
minimum expense. By entering into compromise settlements, the objective is achieved.
Also, a lot of executive time is saved because most of the usual problems / delays
associated with court action are avoided.
2. Projects a helpful image of the Bank
A well-concluded compromise settlement, which results in a ‘WIN-WIN’ for the Bank as
well as the borrower, is a strong positive propaganda for the Bank. The impression
generated is that the Bank is capable not only of sympathy, but also empathy.
3. Expedites recycling of funds
Compromise settlements aim at quick recovery. Recovery means funds becoming
available for recycling and, additional interest generation.
4. Cleanses Balance Sheet
With the NPA level going down, and the additional funds becoming available for
recycling as fresh advances, the asset quality of the Bank is bound to go up. Improved
asset quality signifies higher profits by reduced provisions and increased interest income.
With additions to the reserves, the capital position also improves, improving the Capital
Adequacy position.

Disadvantages

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 1. Compromise involves loss, since full recovery is not possible. In fact, full recovery is
not even envisaged, but sacrifice is.
2. It may be viewed as a reward for default, especially if chronic default cases are settled
by negotiations.
3. It may have a demonstrative effect, and so may vitiate the culture of repayment.
4. There is also the possibility of misuse or, even, mala fides, since assessment of situation is
highly subjective.

Practical aspects of compromise settlements

Every compromise proposal needs to be looked at individually, evaluated strictly on
merits, and negotiated properly for maximization of benefit to the Bank. Hence, a straight
jacket approach is not possible, neither is it desirable, to give strict guidelines for
compromise settlements.
2. Restructuring and Rehabilitation
Banks are free to design and implement their own policies for restructuring/ rehabilitation
of the NPA accounts reschedulement of payment of interest and principal after
considering the Debt service coverage ratio, contribution of the promoter and availability
of security
3. LokAdalats
LokAdalat institutions help banks to settle disputes involving accounts in “doubtful” and
“loss” category, with outstanding balance of Rs.5lakh for compromise settlement under
LokAdalats. Debt Recovery Tribunals have now been empowered to organize LokAdalats
to decide on cases of NPAs of Rs.10lakhs and above. The public sector banks had
recovered Rs.40.38crore as on September 30, 2001, through the forum of LokAdalat. The
progress through this channel is expected to pick up in the coming years particularly
looking at the recent initiatives taken by some of the public sector banks and DRTs in
Mumbai. Some of features are
 Small NPAs up to Rs.20Lakhs
 Speedy Recovery
 Veil of Authority
 Soft Defaulters
 Less expensive
 Easier way to resolve
4. Debt Recovery Tribunals
The Recovery of Debts due to Banks and Financial Institutions (amendment) Act, passed
in March 2000 has helped in strengthening the functioning of DRTs. Provisions for

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 placement of more than one Recovery Officer, power to attach defendant’s property/assets
before judgment, penal provisions for disobedience of Tribunal’s order or for breach of
any terms of the order and appointment of receiver with powers of realization,
management, protection and preservation of property are expected to provide necessary
teeth to the DRTs and speed up the recovery of NPAs in the times to come.
Though there are 22 DRTs set up at major centres in the country with Appellate Tribunals
located in five centres viz. Allahabad, Mumbai, Delhi, Calcutta and Chennai, they could
decide only 9814 cases for Rs.6264.71crore pertaining to public sector banks since
inception of DRT mechanism and till September 30, 2001.The amount recovered in
respect of these cases amounted to only Rs.1864.30crore.
I may add that familiarization programmes have been offered in NIBM at periodical
intervals to the presiding officers of DRTs in understanding the complexities of
documentation and operational features and other legalities applicable of Indian banking
system. RBI on its part has suggested to the Government to consider enactment of
appropriate penal provisions against obstruction by borrowers in possession of attached
properties by DRT receivers, and notify borrowers who default to honour the decrees
passed against them.
5. Circulation of information on defaulters
The RBI has put in place a system for periodical circulation of details of wilful defaults of
borrowers of banks and financial institutions. This serves as a caution list while
considering requests for new or additional credit limits from defaulting borrowing units
and also from the directors /proprietors / partners of these entities. RBI also publishes a
list of borrowers (with outstanding aggregating Rs. 1crore and above) against whom suits
have been filed by banks and FIs for recovery of their funds, as on 31st March every year.
It is our experience that these measures had not contributed to any perceptible recoveries
from the defaulting entities. However, they serve as negative basket of steps shutting off
fresh loans to these defaulters. I strongly believe that a real breakthrough can come only if
there is a change in the repayment psyche of the Indian borrowers.
6. Recovery action against large NPAs
After a review of pendency in regard to NPAs by the Honourable Finance Minister, RBI
had advised the public sector banks to examine all cases of wilful default of Rs 1crore and
above and file suits in such cases, and file criminal cases in regard to wilful defaults.
Board of
Directors are required to review NPA accounts of Rs.1crore and above with special
reference to fixing of staff accountability.
On their part RBI and the Government are contemplating several supporting measures.

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 7. Asset Reconstruction Company:
An Asset Reconstruction Company with an authorized capital of Rs.2000crore and initial
paid up capital Rs.1400crore is to be set up as a trust for undertaking activities relating to
asset reconstruction. It would negotiate with banks and financial institutions for acquiring
distressed assets and develop markets for such assets. Government of India proposes to go
in for legal reforms to facilitate the functioning of ARC mechanism.
8. Legal Reforms
The Honourable Finance Minister in his recent budget speech has already announced the
proposal for a comprehensive legislation on asset foreclosure and Securitization. Since
enacted by way of Ordinance in June 2002 and passed by Parliament as an Act in
December 2002.
9. Corporate Debt Restructuring (CDR)
Corporate Debt Restructuring mechanism has been institutionalized in 2001 to provide a
timely and transparent system for restructuring of the corporate debts of Rs.20crore and
above with the banks and financial institutions. The CDR process would also enable
viable corporate entities to restructure their dues outside the existing legal framework and
reduce the incidence of fresh NPAs. The CDR structure has been headquartered in IDBI,
Mumbai and a Standing Forum and Core Group for administering the mechanism had
already been put in place. The experiment however has not taken off at the desired pace
though more than six months have lapsed since introduction. As announced by the
Honourable Finance Minister in the Union Budget 2002-03, RBI has set up a high level
Group under the Chairmanship of Shri.VepaKamesam, Deputy Governor, RBI to review
the implementation procedures of CDR mechanism and to make it more effective. The
Group will review the operation of the CDR Scheme, identify the operational difficulties,
if any, in the smooth implementation of the scheme and suggest measures to make the
operation of the scheme more efficient.
10. Credit Information Bureau
Institutionalization of information sharing arrangements through the newly formed Credit
Information Bureau of India Ltd. (CIBIL) is under way. RBI is considering the
recommendations of the S.R.Iyer Group (Chairman of CIBIL) to operationalise the
scheme of information dissemination on defaults to the financial system. The main
recommendations of the Group include dissemination of information relating to suit-filed
accounts regardless of the amount claimed in the suit or amount of credit granted by a
credit institution as also such irregular accounts where the borrower has given consent for
disclosure. This, I hope, would prevent those who take advantage of lack of system of
information sharing amongst lending institutions to borrow large amounts against same

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 assets and property, which had in no small measure contributed to the incremental NPAs
of banks.
11. Proposed guidelines on wilful defaults/diversion of funds
RBI is examining the recommendation of Kohli Group on wilful defaulters. It is working
out a proper definition covering such classes of defaulters so that credit denials to this
group of borrowers can be made effective and criminal prosecution can be made
demonstrative against wilful defaulters.
12. Corporate Governance
A Consultative Group under the chairmanship of Dr. A.S. Ganguly was set up by the
Reserve Bank to review the supervisory role of Boards of banks and financial institutions
and to obtain feedback on the functioning of the Boards vis-à-vis compliance,
transparency, disclosures, audit committees etc. and make recommendations for making
the role of Board of Directors more effective with a view to minimizing risks and over-
exposure. The Group is finalizing its recommendations shortly and may come out with
guidelines for effective control.

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 CHAPTER-2

RESEARCH METHODOLOGY

INTRODUCTION

The design of any research project requires considerable attention to the research methods
and the proposed data analysis. Within this section, we have attempted to provide some
information about how to produce a research design for a study. We offer a basic
overview of the research methods portion of a research proposal and then some data
analysis templates for different types of designs. Our goal is not to answer every question,
but provide a head start.

OBJECTIVE OF THE STUDY

 To understand the concept of Non-Performing Assets of Public Sector Banks.

 To evaluate the efficiency in managing Non-Performing Assets of Public Sector
Banks via comparative ratios.
 To analyze the various compositions of the Non-Performing Assets of Public
Sector Banks.
 To study the impact of Non-Performing Assets on profitability of Public Sector
Banks.
 To study the various recovery channels for Non-Performing Assets.

SCOPE OF THE STUDY

The present study of the non performing assets is confined restricted to the boundary of
public sector and bank of India.

 To understand the causes & effects of NPA.

 To analyze the past trends of NPA of public sector banks.
 Banks can improve their financial position or can increase their income from
credits with the help of this project.
 This can also be applicable to know the reasons of increase in NPAs.

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 RESEARCH DESIGN

A research design is a frame work or blue print for conducting research procedure is
necessary for obtaining information to solve the problem. Research designed to assist the
decision maker in determining, evaluating and selecting the best course of action to take in
a given situation. Descriptive studies are usually the best methods for collecting
information that will demonstrate relationships and describe the world as it exists.
Descriptive studies are designed primarily to describe what is going or what exist.

The research design that will be use is Descriptive Research.

 Involves gathering data that describe events and then organizes, tabulates, depicts,
and describes the data.
 Uses description as a tool to organize data into patterns that emerge during
analysis.
 Often uses visual aids such as graphs and charts to aid the reader.

SOURCE OF DATA

Secondary data refers to the data which has already been generated and is available for
use. The data about NPAs & its composition, classification of loan assets, profits &
advances of different banks is taken from the official website of the Reserve Bank of India
and some other banking sites. In this research study the researcher have to take all Public
Sector Banksfrom the authorized published data of RBI for the study.

PERIOD OF STUDY

This study covers the period of five years from 2014 to 2018.

DATA ANALYSIS

The collected information has been tabulated, analyzed and interpretation has been arrived
on the basis of statistical analysis. Data processing and analysis have been done both
manually and by using computer. Tabular method, ratio analysis and correlation analysis
tools have been used. In this research various ratios are calculated in excel worksheet and
correlation analysis have been done through SPSS statistical analysis tool.

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 LIMITATION OF STUDY

 Since my study is based upon Secondary data, the practical operations as related to
NPAs are adopted by the banks are not learned.
 NPAs are changing with the time. The study is done in the present environment
without foreseeing future developments.
 The study is based on secondary data as published in various publications of RBI
and other reports. These data are based on historical accounting concept, which
ignores the impact of inflation. The study, as limitations, is confined only to the
selected and restricted indicators and the study is confined only for the period of
five years.

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 CHAPTER-3
REVIEW OF LITERATURE

 C.Sivarami Reddy and Smt.V.Kalavathi (2011): Studied the reasons remedies of

non-performing assets, they found that the reasons for NPA were diversification of
funds, mostly for expansion / diversification of business like product / market
failure, inefficient management, inappropriate technology, labor unrest etc.,
changes in the macro environment like recession, infrastructural bottle necks etc.,
time / cost overruns during project implementation, changes in government
policies, and delay in release of sanctioned limits by banks. They highlighted
various steps for reducing NPAS they are, study the Problems of NPA branch
wise, amount wise and age wise, prepare loan Recovery policy and strategies for
reducing NPA, create special cells at the Head office / zonal office level to look
after critical branches where NPAs are on the high side, select prepare technique
suitable for the NPA and monitor it in a time bound action plan. They concluded
that NPA is not just a problem for banks they are bad for the economy. The money
locked up in NPA is not available for productive use and to that extent the banks
seek to make provisions for NPA or write them off.

 Datta Chaudhuri (2015): Examined the “Resolution Strategies for maximizing

value of Non-Performing Assets (NPAs)”. The article indicates that declining
capital adequacy adversely affects shareholder value and restricts the ability of the
bank/institution to access the capital market for additional equity 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 considerations that one has to
bear in mind before zeroing on a resolution strategy and provides a State -
Resolution - Mapping (SRM) framework. However, the paper has not specifically
discussed about the various resolution strategies that could be put in place for
recovery from NPAs, and in particular, in which situation which type of strategy
should be adopted.

33 | P a g e
  Amitabh Joshi (2012): Conducted a survey on “Analysis of Non-Performing
Assets 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 Nonperforming advances, their containment at minimum
levels and ensuring that their impingement on the financials 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 borrower(s) 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.

 Bhatia (2010): In his research paper entitled, “Non-Performing Assets of Indian

Public, Private and Foreign Sector Banks: An Empirical Assessment”, explores an
empirical approach to the analysis of Non-Performing Assets (NPAs) of public,
private, and foreign sector banks in India. The NPAs are considered as an
important parameter to judge the performance and financial health of banks. The
level of NPAs is one of the drivers of financial stability and growth of the banking
sector. This paper aims to find the fundamental factors which impact NPAs of
banks. A model consisting of two types of factors, viz., macroeconomic factors
and bank-specific parameters, is developed and the behavior of NPAs of the three
categories of banks is observed.

 Ved Pal and Malik (2013): 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 was 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 business 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 performer after foreign banks.
There were giving a higher return on equity in comparison to foreign and private

34 | P a g e
 banks. It was high performer in economizing their expenses which was reflected
from expense rate and efficiency ratio. The private sector banks emerged with a
better utilizer of resources as compared to PSB’s.

 Vikas and Tandon Sunman (2016): Attempts to analyze the financial

performance of public sector banks in India. Public sector banks form major part
of total banking system in India so there is a need to evaluate the performance of
these banks. The study is based upon secondary data covering the period from
1997-2007. For analyzing the performance Compound Annual Growth rate and
Coefficient of Variation of advances, deposits, total assets, return on assets, and
return on equity and spread ratio are calculated. Decline in growth of
nonperforming assets ratio is also considered for this evaluation. It is concluded
the CAGR of various variables have shown variation from bank to bank. State
Bank of Indore has shown maximum CAGR in case of total advances, total
deposits and total assets. Punjab & Sind Bank has shown least growth of deposits
and advances and State Bank of India has least growth of deposits. CAGR of
return on equity and return on assets was at peak of United Bank of India whereas
Dena Bank, Punjab& Sind Bank and Indian Bank have shown negative trend in
these ratios. Decline of NPA’s ratio was highest in case of State Bank of
Hyderabad and least in case of Dena Bank.

 Ashok Khurana and Mandeep Singh (2010): Stated that issue of mounting
NPAs is a challenging to public to public sector banks. The study found that the
asset wise classification of PSBs is in right direction and there is significant
variation in the recovery of NPAs in the different sector. The research observed
that PSBs should not be loaded with the twin object of profitability and social weal
fair.

 Jaya Shukla and Gaurav Bajpai (2013): In their paper presents a mathematical
model for problem of stability of non- performing assets (NPA’s) growth in
banking sector. The various variables leading to high NPA are identified. A
sufficient criterion which ensures the damping out of the effects arising out of the
perturbations in the variables is obtained. The model assumes prevalence of
normal conditions in banking sector in terms of liquidity, political interference and
other external factors affecting the stability of NPA. The model emphasizes on

35 | P a g e
 growth of NPA’s at stable rate to improve banks asset portfolio and quality of
service assured by banks.

 Goyal Kanika (2013): Observed increase in gross as well as net NPAs in absolute
terms and improved asset quality of banks. The public sector banks have managed
its assets proficiently; however, the study observes that increased NPA’s in the
agriculture sector is a matter of great concern. The study is analytical in nature,
and it is based on the secondary retrieved from Report on Trend and Progress of
Banking in India, Report on Currency and Finance etc. The scope of the study is
limited to the analysis of NPAs of the public sector banks for the period 2002-03
to 2008-09. It examines trend of NPAs; quality of assets; health of several loan
assets; sector wise NPAs etc. The data has been analyzed by statistical tools such
as descriptive statistics, correlation, regression analysis, one-way ANOVA, and
post-hoc Tukey HSD procedure.

 Prashanth K. Reddy (2012): 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. B. Chandra Mohan (2011): “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

36 | P a g e
 incongruent. This calls for a strong political will only then can banks be able to
find satisfactory solution of the problem.

 Mahipal Singh Yadav (2011): He 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 percent profitability of the banks and its impact has gone to
increase at very large extent when it works with other strategic banking variables.

 Dr. Nammita Rajput (2011): In her research paper title “ Profitability and
Nonperforming 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.

37 | P a g e
 CHAPTER-4
COMPANY PROFILE

Company profile of SBI

The State Bank of India (SBI) is an Indian multinational, public sector banking
and financial services company. It is a government-owned corporation headquartered
in Mumbai, Maharashtra. The company is ranked 216th on the Fortune Global 500 list of
the world's biggest corporations as of 2017. It is the largest bank in India with a 23%
market share in assets, besides a share of one-fourth of the total loan and deposits market.
The bank descends from the Bank of Calcutta, founded in 1806, via the Imperial Bank of
India, making it the oldest commercial bank in the Indian subcontinent. The Bank of
Madras merged into the other two "presidency banks" in British India, the Bank of
Calcutta and the Bank of Bombay, to form the Imperial Bank of India, which in turn
became the State Bank of India in 1955. The Government of Indiatook control of the
Imperial Bank of India in 1955, with Reserve Bank of India (India's central bank) taking a
60% stake, renaming it the State Bank of India. In 2008, the government took over the
stake held by the Reserve Bank of India.

History
The roots of the State Bank of India lie in the first decade of the 19th century when
the Bank of Calcutta later renamed the Bank of Bengal, was established on 2 June 1806.
The Bank of Bengal was one of three Presidency banks, the other two being the Bank of
Bombay(incorporated on 15 April 1840) and the Bank of Madras (incorporated on 1 July
1843). All three Presidency banks were incorporated as joint stock companies and were
the result of royal charters. These three banks received the exclusive right to issue paper
currency till 1861 when, with the Paper Currency Act, the right was taken over by the
Government of India. The Presidency banks amalgamated on 27 January 1921, and the re-
organised banking entity took as its name Imperial Bank of India. The Imperial Bank of
India remained a joint stock company but without Government participation.
Pursuant to the provisions of the State Bank of India Act of 1955, the Reserve Bank of
India, which is India's central bank, acquired a controlling interest in the Imperial Bank of
India. On 1 July 1955, the Imperial Bank of India became the State Bank of India. In
2008, the Government of India acquired the Reserve Bank of India's stake in SBI so as to

38 | P a g e
 remove any conflict of interest because the RBI is the country's banking regulatory
authority.
In 1959, the government passed the State Bank of India (Subsidiary Banks) Act. This
made eight banks that had belonged to princely states into subsidiaries of SBI. This was at
the time of the first Five Year Plan, which prioritised the development of rural India. The
government integrated these banks into the State Bank of India system to expand its rural
outreach. In 1963 SBI merged State Bank of Jaipur (est. 1943) and State Bank of Bikaner
(est.1944).
SBI has acquired local banks in rescues. The first was the Bank of Bihar (est. 1911),
which SBI acquired in 1969, together with its 28 branches. The next year SBI acquired
National Bank of Lahore (est. 1942), which had 24 branches. Five years later, in 1975,
SBI acquired Krishnaram Baldeo Bank, which had been established in 1916 in Gwalior
State, under the patronage of Maharaja Madhav Rao Shinde. The bank had been
the Dukan Pichadi, a small moneylender, owned by the Maharaja. The new bank's first
manager was Jall N. Broacha, a Parsi. In 1985, SBI acquired the Bank of Cochin
in Kerala, which had 120 branches. SBI was the acquirer as its affiliate, the State Bank of
Travancore, already had an extensive network in Kerala.
There has been a proposal to merge all the associate banks into SBI to create a single very
large bank and streamline operations.
The first step towards unification occurred on 13 August 2008 when State Bank of
Saurashtra merged with SBI, reducing the number of associate state banks from seven to
six. On 19 June 2009, the SBI board approved the absorption of State Bank of Indore. SBI
holds 98.3% in State Bank of Indore. (Individuals who held the shares prior to its takeover
by the government hold the balance of 1.7%.)
The acquisition of State Bank of Indore added 470 branches to SBI's existing network of
branches. Also, following the acquisition, SBI's total assets will approach 10 trillion. The
total assets of SBI and the State Bank of Indore were 9981190 million as of March 2009.
The process of merging of State Bank of Indore was completed by April 2010, and the
SBI Indore branches started functioning as SBI branches on 26 August 2010.
On 7 October 2013, Arundhati Bhattacharya became the first woman to be appointed
Chairperson of the bank. Mrs. Bhattacharya received an extension of two years of service
to merge into SBI the five remaining associated banks.

39 | P a g e
 Employees
State Bank Institute of Credit, Risk and Management, Gurgaon
SBI is one of the largest employers in the country with 209,567 employees as on 31
March 2017, out of which there were 23% female employees and 3,179 (1.5%) employees
with disabilities. On the same date, SBI had 37,875 Scheduled Castes (18%), 17,069
Scheduled Tribes (8.1%) and 39,709 Other Backward Classes (18.9%) employees. The
percentage of Officers, Associates and Sub-staff was 38.6%, 44.3% and 16.9%
respectively on the same date. Around 13,000 employees have joined the Bank in FY
2016–17. Each employee contributed a net profit of 511,000 (US$7,100) during FY 2016–
17.

Listing and shareholdings

Shareholders Shareholding
Promoter 58.53%

Public 41.47%
Others -
Total 100%

Recent awards and recognition

SBI was ranked 232nd in the Fortune Global 500 rankings of the world's biggest
corporations for the year 2016.
SBI was 50th most trusted brand in India as per the Brand Trust Report 2013, an annual
study conducted by Trust Research Advisory, a brand analytics company and
subsequently, in the Brand Trust Report 2014, SBI finished as India's 19th most trusted
brand in India.

Company profile of PNB

Punjab National Bank (PNB) is an Indian multinational banking and financial
services company. It is a state-owned corporation based in New Delhi, India. The bank
was founded in 1894. As of 31 March 2017, the bank has over 80 million customers,
6,937 branches (7,000 as on 2nd oct, 2018) and 10681 ATMs across 764 cities.
PNB has a banking subsidiary in the UK (PNB International Bank, with seven branches in
the UK), as well as branches in Hong Kong, Kowloon, Dubai, and Kabul. It has
representative offices in Almaty(Kazakhstan), Dubai(United Arab Emirates),
40 | P a g e
 Shanghai(China), Oslo(Norway), and Sydney(Australia). In Bhutan it owns 51% of Druk
PNB Bank, which has five branches. In Nepal PNB owns 20% of Everest Bank Limited,
which has 50 branches. Lastly, PNB owns 84% of JSC (SB) PNB Bank in Kazakhstan,
which has four branches.

History
Punjab National Bank is a PSU working under Central Government of India regulated by
RBI Act, 1934 and Banking Regulation Act, 1949. Punjab National Bank was registered
on 19 May 1894 under the Indian Companies Act, with its office in Anarkali
Bazaar, Lahore, in present-day Pakistan. The founding board was drawn from different
parts of India professing different faiths and of varying back-ground with, the common
objective of creating a truly national bank that would further the economic interest of the
country. PNB's founders included several leaders of the Swadeshi movement such as Dyal
Singh Majithia and Lala Harkishen Lal, Lala Lalchand, Kali Prosanna Roy, E. C.
Jessawala, Prabhu Dayal, Bakshi Jaishi Ram, and Lala Dholan Dass. Lala Lajpat Rai was
actively associated with the management of the Bank in its early years. The board first met
on 23 May 1894. The bank opened for business on 12 April 1895 in Lahore.
PNB has the distinction of being the first Indian bank to have been started solely with Indian
capital that has survived to the present. ( The first entirely Indian bank, Oudh Commercial
Bank, was established in 1881 in Faizabad, but failed in 1958.)
PNB has had the privilege of maintaining accounts of national leaders such as Mahatma
Gandhi, Jawahar Lal Nehru, Lal Bahadur Shastri, Indira Gandhi, as well as the account of
the famous Jalianwala Bagh Committee.

Employees

As on 31 March 2015, the bank had 68,290 employees. As of 31 March 2013, it also had
919 employees with disabilities on the same date (1.45%). The average age of bank
employees on the same date was 46 years. The bank reported business of INR 11.65
crores per employee and net profit of INR 8.06lakhs per employee during the FY 2012-
13. The company incurred INR 5,751crores towards employee benefit expenses during the
same financial year.

41 | P a g e
 Listing and shareholdings

Shareholders Shareholding
Promoter 70.22%

Public 29.78%
Others -
Total 100%

Awards and recognitions

Punjab National Bank was ranked 717 in the Forbes Global 2000 in May 2013.

Punjab National Bank was ranked 26 in the Fortune India 500 ranking of 2011.

PNB was awarded the 'Best Public Sector Bank' by CNBC TV18 in 2012.

The bank was recognised as the 'most socially responsive bank' by Business
world and PwC in 2012.

In 2011, it received Golden Peacock Award for "Excellence in Corporate Social

Responsibility" and "National Training Award".

Company profile of Bank of Baroda

Bank of Baroda (BoB) is an Indian multinational, public sector banking and financial
services company. It is owned by Government of India and headquartered in Vadodara,
Gujarat. It has a corporate office in Mumbai, Maharashtra.
Based on 2017 data, it is ranked 1145 on Forbes Global 2000 list. BoB has total assets in
excess of 3.58 trillion (making it India’s 2nd biggest bank by assets), a network of 5538
branches in India and abroad, and 10441 ATMs as of July, 2017. The government of India
announced the merger of Bank of Baroda, Vijaya Bank and Dena Bank on September 17,
2018 to create the country's third largest lender. The envisaged amalgamation will be the
first-ever three-way consolidation of banks in the country, with a combined business of Rs
14.82 lakh crore, making it the third largest bank after State Bank of India (SBI) and
ICICI Bank.

42 | P a g e
 The bank was founded by the Maharaja of Baroda, Maharaja Sayajirao Gaekwad III on
20 July 1908 in the Princely State of Baroda, in Gujarat. The bank, along with 13 other
major commercial banks of India, was nationalised on 19 July 1969, by the Government
of India and has been designated as a profit-making public sector undertaking (PSU). As
many as 10 banks have been merged with Bank of Baroda during its journey so far.

History
Maharaja Sayajirao Gaekwad III, the founder of Bank of Baroda
In 1908, Maharaja Sayajirao Gaekwad III, set up the Bank of Baroda (BoB), with other
stalwarts of industry such as Sampatrao Gaekwad, Ralph Whitenack, Vithaldas
Thakersey, Tulsidas Kilachand and NM Chokshi. Two years later, BoB established its
first branch in Ahmedabad. The bank grew domestically until after World War II. Then in
1953 it crossed the Indian Ocean to serve the communities of Indians in
Kenya and Indians in Uganda by establishing a branch each in Mombasa and Kampala.
The next year it opened a second branch in Kenya, in Nairobi, and in 1956 it opened a
branch in Tanzania at Dar-es-Salaam. Then in 1957 BoB took a giant step abroad by
establishing a branch in London. London was the centre of the British Commonwealth and
the most important international banking centre. In 1958 BoB acquired Hind Bank
(Calcutta; est. 1943), which became BoB's first domestic acquisition.
In 1972, BoB acquired Bank of India's operations in Uganda. Two years later, BoB
opened a branch each in Dubai and Abu Dhabi.
Back in India, in 1975, BoB acquired the majority shareholding and management control
of Bareilly Corporation Bank (est. 1954) and Nainital Bank (est. in 1928), both in Uttar
Pradesh. Since then, Nainital Bank has expanded to Uttarakhand state.
In 1980, BoB opened a branch in Bahrain and a representative office in Sydney, Australia.
BoB, Union Bank of India and Indian Bank established IUB International Finance, a
licensed deposit taker, in Hong Kong. Each of the three banks took an equal share.
Eventually (in 1999), BoB would buy out its partners.
Back in India, in 1988, BoB acquired Traders Bank, which had a network of 34 branches
in Delhi.
In 1997, BoB opened a branch in Durban. The next year BoB bought out its partners in
IUB International Finance in Hong Kong. Apparently this was a response to regulatory
changes following Hong Kong's reversion to the People's Republic of China. The now
wholly owned subsidiary became Bank of Baroda (Hong Kong), a restricted license bank.
BoB also acquired Punjab Cooperative Bank in a rescue. BoB incorporate a wholly–
owned subsidiary, BOB Capital Markets, for broking business.

43 | P a g e
 In 2000 BoB established Bank of Baroda (Botswana). The bank has three banking offices,
two in Gaborone and one in Francistown. In 2002, BoB converted its subsidiary in Hong
Kong from deposit taking company to a Restricted License Bank.
In 2002 BoB acquired Benares State Bank (BSB) at the Reserve Bank of India's request.
BSB had been established in 1946 but traced its origins back to 1871 and its function as
the treasury office of the Benares state. In 1964 BSB had acquired Bareilly Bank (est.
1934), with seven branches in western districts of Uttar Pradesh; BSB also had taken over
Lucknow Bank in 1968. The acquisition of BSB brought BoB 105 new branches.
Lucknow Bank, a unit bank with its only office in Aminabad, had been established in
1913. Also in 2002, BoB listed Bank of Baroda (Uganda) on the Uganda Securities
Exchange (USE). The next year BoB opened an OBU in Mumbai.
In 2004 BoB acquired the failed south Gujarat Local Area Bank. BoB also returned to
Tanzania by establishing a subsidiary in Dar-es-Salaam. BoB also opened a representative
office each in Kuala Lumpur, Malaysia, and Guangdong, China.
In 2007, its centenary year, BoB's total business crossed 2.09 trillion (short scale), its
branches crossed 2000, and its global customer base 29 million people. In Hong Kong,
Bank got Full Fledged Banking license and business of its Restricted License Banking
subsidiary was taken over Bank of Baroda branch in Hong Kong w.e.f.01.04.2007.
In 2008 BoB opened a branch in Guangzhou, China (02/08/2008) and in Kenton, Harrow
United Kingdom. BoB opened a joint venture life insurance company with Andhra
Bank and Legal and General (UK) called India First Life Insurance Company.
In 2009 Bank of Baroda (New Zealand) was registered. As of 2017 BoB (NZ) has 3
branches: two in Auckland, one in Wellington.

Listing and shareholdings

Shareholders Shareholding

Promoter 65.37%

Public 34.63%

Others -

Total 100%

44 | P a g e
 Awards and Recognitions

Best Public Sector Bank Award under the category of Global Business at the Dun &
Bradstreet Banking Awards 2015.

The Government of India awarded Bank with the 1st Prize in the Indira Gandhi Rajbhasha
Shield

Competition in Region 'B' on Hindi Diwas 2014. Further, Bank was awarded first prize for
'B' Region and second prizes for Region 'A' and 'B' by Reserve Bank of India (RBI) under
the RBI Rajbhasha Shield Competition.

BML Munjal award in Public Sector Category for Business Excellence Through Learning
& Development –2015.

Excellence in Banking (PSU Sector) at the 5th My FM Stars of the Industry Awards
recently held in Mumbai on 30.01.2015

National Prize – First Rank in Innovative Training Practices for the year 2014 from
―Indian Society for Training and Development‖ (ISTD).

Golden Peacock National Training Award for the year 2014 under the aegis of Institute of
Directors, New Delhi.

Champion of Champions Award at the 54th annual ABCI Awards 2015, for 6 Categories-
Indian

Language Publication – Bronze; Exhibition Collateral – Gold; Wall Calendar 2014 –

Silver; Environmental Communication – Silver; E-Zine – Bronze; Corporate Film – Gold.

3 Awards at the IBA Banking Technology Awards 2014 – 15, Winner in Best Financial
Inclusion

Initiative; First Runner up in Training & Human Resources, E - learning Initiatives; First
Runner up in ―Best Use of Data.

45 | P a g e
 Best Bank - Global Business Development (Public Sector) & Best Bank – Overall (Public
Sector) Award in Dun & Bradstreet – Polaris Financial Technology Banking Awards
2014.

Skoch Order of Merit in India‘s Best 2014 Financial Inclusion & Deepening Awards
2014.

ASSOCHAM Social Banking Excellence Award under Public Sector Banks category, in
recognition of the significant initiatives being undertaken by the Bank in social banking
sphere.

The Most Efficient Public Sector Bank‘ for the year 2014 by Dalal Street Investment
Journal in the Best PSU‘s of India Awards.

46 | P a g e
 CHAPTER-5
DATA ANALYSIS AND INTERPRETATION

SBI BS
Particulars 2014 2015 2016 2017 2018
CAPITAL AND
LIABILITIES

Capital 746.57 746.57 776.28 797.35 892.46

Reserves & Surplus 117535.68 127691.65 143498.16 187488.71 218236.10
Deposits 1394408.50 1576793.25 1730722.44 2044751.39 2706343.29
Borrowings 183130.88 205150.29 323344.59 317693.66 362142.07
Other Liabilities 96926.65 137698.04 159276.08 155231.19 167138.08
and Provision

TOTAL 1792748.29 2048079.80 2357617.54 2705966.30 3454791.99

ASSETS
Cash and Balances 84955.66 115883.84 129629.33 127997.62 150397.18
with RBI

Balances With 47593.97 58977.46 37838.33 43974.03 41501.46

Banks and Money
at call and short
notice

Investments 398799.57 495027.40 575651.78 765989.63 1060986.72

Advances 1209828.72 1300026.39 1463700.42 1571078.38 1934880.19
Fixed Assets 8002.16 9329.16 10389.28 42918.92 3992.25
Other Assets 43568.21 68835.54 140408.41 154007.72 226994.20
TOTAL 1792748.29 2048079.80 2357617.54 2705966.30 3454791.99
Contingent 1017329.95 1000627.26 971956.01 1046440.93 1162020.69
liabilities
Bills for 74028.42 92795.25 92211.65 65640.42 74027.90
Collection

47 | P a g e
 PNB

Particulars 2014 2015 2016 2017 2018

CAPITAL AND
LIABILITIES

Capital 362.07 370.91 392.72 425.59 552.11

Reserves & Surplus 35533.25 38708.61 37917.42 41421.39 42732.45
Deposits 451396.75 501378.64 553051.13 621704.02 648439.01
Borrowings 48034.41 45670.55 59755.24 40763.34 65329.66
Other Liabilities 15093.44 17204.89 16273.94 16016.21 21941.67
and Provision

TOTAL 550419.92 603333.60 667390.46 720330.55 778994.91

ASSETS
Cash and Balances 22245.58 24224.94 26479.07 25209.99 29028.91
with RBI

Balances With 22972.87 31709.23 49144.02 63121.65 68459.24

Banks and Money
at call and short
notice

Investments 143785.50 151282.35 157845.89 186725.44 205910.18

Advances 349269.12 380534.41 412325.80 419493.15 438797.99
Fixed Assets 3419.74 3551.48 5222.73 6273.25 6374.31
Other Assets 8727.10 12031.20 16372.94 19507.06 30424.28
TOTAL 550419.92 603333.60 667390.46 720330.55 778994.91
Contingent 216274.78 273945.38 335795.92 332831.33 308790.19
liabilities
Bills for 203225.97 19614.62 23221.19 25779.13 27898.25
Collection

48 | P a g e
 Bank of Baroda

Particulars 2014 2015 2016 2017 2018

CAPITAL AND
LIABILITIES

Capital 430.68 443.56 462.09 462.09 530.36

Reserves & Surplus 35554.99 39391.79 39736.89 39841.16 42864.41
Deposits 568894.39 617559.52 574037.87 601675.17 591314.82
Borrowings 36812.97 35264.28 33471.70 30611.44 62571.97
Other Liabilities 17811.50 22329.40 23667.92 22285.56 22718.21
and Provision

TOTAL 659504.53 714988.55 671376.48 694875.42 719999.77

ASSETS
Cash and Balances 18629.09 22488.60 21672.42 22780.21 22699.64
with RBI

Balances With 112248.82 125864.55 112227.93 127689.70 70197.74

Banks and Money
at call and short
notice

Investments 116112.66 116812.24 120450.52 129630.54 163184.53

Advances 397005.81 428065.14 383770.18 383259.22 427431.83
Fixed Assets 2734.12 2874.85 6253.78 5758.37 5367.39
Other Assets 12774.03 18883.18 27001.65 25757.37 31118.64
TOTAL 659504.53 714988.55 671376.48 694875.42 719999.77
Contingent 259912.78 246384.72 228977.16 252518.96 298226.66
liabilities
Bills for 31864.92 37808.06 32343.74 37599.42 45779.69
Collection

49 | P a g e
 SBI P& L

Part 2014 2015 2016 2017 2018

INCOME
Interest Earned 136350.80 152397.07 163998.30 175518.24 220499.32
Other Income 18552.92 22575.89 27845.37 35460.93 44600.69
Total 154903.72 174972.97 191843.67 210979.17 265100
EXPENDITURE
Interest Expended 87068.63 97381.82 106803.49 113658.50 145645.60
Operating Expenses 35725.85 38677.64 41782.37 46472.77 59943.45
Provisions and Contingencies 21218.06 25811.93 33307.15 40363.79 66058.41
Total 144012.55 161871.39 181893.01 200495.07 271647.46
Profit
Net Profit for the year 10891.17 13101.57 9950.65 10484.10 (12955.14)
Profit brought forward 0.33 0.32 0.32 0.32 0.32
Total 10891.51 13101.90 9950.98 10484.42 (12954.83)
APPROPRIATIONS
Transfer To Statutory Reserve 3339.62 4029.08 2985.20 3145.23 -
Transfer To Capital Reserve 216.75 105.50 345.27 1493.39 3288.88
Transfer To Revenue And Other
Reserves 4796.64 5889.06 4267.35 3430.55 (1165.14)
Dividend for previous year 0.01 - - - -
Dividend of current year
(i)Interim dividend 1119.86 - - - -
(ii)Final dividend 1119.86 2648.17 2018.32 2108.56 -
Tax on dividend for the year 298.45 429.76 334.51 306.38 -
Balance Carried Over To
Balance Sheet 0.32 0.32 0.32 0.32 (15078.57)
Total 10891.51 13101.90 9950.98 10484.42 (12954.83)
OTHER INFORMATION

50 | P a g e
 PNB P& L

Part 2014 2015 2016 2017 2018

INCOME
Interest Earned 43223.25 46315.36 47424.35 47275.99 47995.77
Other Income 4576.71 5890.73 6000.05 8951.37 8880.87
Total 47799.97 52206.09 53424.40 56227.36 56876.64
EXPENDITURE
Interest Expended 27077.28 29759.79 32112.57 32282.82 33073.36
Operating Expenses 9338.23 10491.55 9972.45 9379.38 13509.08
Provisions and Contingencies 8041.88 8893.17 15313.77 13240.36 22577.02
Total 44457.40 49144.51 57398.80 54902.56 69159.46
Profit
Net Profit for the year 3342.57 3061.58 (3974.40) 1324.80 (12282.82)
Profit brought forward - - - - -
Total 3342.57 3061.58 (3974.40) 1324.80 (12282.82)
APPROPRIATIONS
Transfer To Statutory Reserve 835.64 765.40 - 331.20 -
Transfer To Capital Reserve 46.58 85.40 111.73 513.70 343.92
Transfer To Revenue And Other
Reserves 1809.61 937.67 (4080.33) 209.80 (12608.82)
Proposed dividend - 612.32 - - -
Interim dividend 362.07 - - - -
Tax on dividend for the year 61.53 125.37 - - -
Balance from provision for tax (2.87) (2.98) (5.80) - (17.92)
Special reserve as per IT Act 230 275 - 270 -
Investment reserve - 263.41 - - -
Balance in P & L A/c - - - - -
Total 3342.57 3061.58 (3974.40) 1324.80 (12282.82)

51 | P a g e
 BANK OF BARODA P & L

Part 2014 2015 2016 2017 2018

INCOME
Interest Earned 38939.71 42963.56 44061.28 42199.93 43648.54
Other Income 4462.74 4401.99 4998.86 6758.06 6657.15
Total 43402.45 47365.55 49060.14 48957.99 50305.69
EXPENDITURE
Interest Expended 26974.36 29776.32 31321.43 28686.52 28126.77
Operating Expenses 7137.07 7674.13 8923.14 9296.40 10173.34
Provisions and Contingencies 4749.94 6516.67 14211.11 9591.93 14437.37
Total 38861.37 43967.12 54455.68 47574.85 52737.51
Profit
Net Profit for the year 4541.08 3398.44 (5395.54) 1383.14 (2431.81)
Total 4541.08 3398.44 (5395.54) 1383.14 (2431.81)
APPROPRIATIONS
Transfer To Statutory Reserve 1135.27 849.61 - 345.78 -
Transfer To Capital Reserve 8.69 108.21 - 353.65 -
Transfer To Revenue And Other
Reserves
(i)General reserve 1401.38 364.57 (5395.54) - (2431.81)
(ii)Special reserve 912.07 1093.90 - 350.92 -
(iii)Investment reserve - 130.46 - - -
(iv)Transfer of previous year - - 7.79 - -
Proposed dividend 1083.68 851.69 - 332.79 -
Total 4541.08 3398.44 (5387.75) 1383.14 (2431.81)
Total
OTHER INFORMATION

52 | P a g e
 Gross NPA’s to Advances Ratio (%)

Year SBI PNB Bank of Baroda

2013-2014 5.09 5.41 2.99

2014-2015 4.36 6.75 3.80

2015-2016 6.71 13.54 10.56

2016-2017 7.15 13.20 11.15

2017-2018 11.55 19.97 13.21

25

20

15
SBI
PNB
10
Bank of Baroda

0
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

Interpretation:
 This analysis indicates the Gross NPA to advances Ratio of Public sector banks i.e
SBI, PNB and Bank of Baroda from 2014 till 2018. As we know very well that
higher this ratio, more dangerous position it is for the banks.
 From the above chart we can clearly understand that rate of growth of Gross NPA
of SBI has decreased to 4.36% in 2015 from 5.09% in 2014 and after that it also
start increasing which raise up to 11.55% in 2018 whereas in PNB it is
continuously increasing since 2014 to 2018 which is 5.41% to 19.97%. The rate of
Gross NPA of Bank of Baroda is also increasing from 2014 to 2018 which is
2.99% to 13.21%.

53 | P a g e
 Net NPA’s to Advances Ratio (%)

Year SBI PNB Bank of

Baroda
2013-2014 2.57 2.84 1.52

2014-2015 2.12 4.05 1.89

2015-2016 3.81 8.59 4.96

2016-2017 3.71 7.80 4.72

2017-2018 5.73 11.22 5.49

12

10

8
SBI
6
PNB

4 Bank of Baroda

0
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

Interpretation:
 This analysis indicates the Net NPA to advances Ratio of Public sector banks i.e
SBI, PNB and Bank of Baroda from 2014 till 2018. As we know very well that
higher this ratio, more dangerous position it is for the banks.
 From the above chart we can clearly understand that rate of growth of Net NPA of
SBI has decreased to 2.12% in 2015 from 2.57% in 2014 and after that it also start
increasing which raise up to 5.73% in 2018 whereas in PNB it is continuously
increasing since 2014 to 2018 which is 2.84% to 11.22%. The rate of Gross NPA
of Bank of Baroda is also increasing from 2014 to 2018 which is 1.52% to 5.49%

54 | P a g e
 Gross NPA’s to Total Assets Ratio (%)

Year SBI PNB Bank of

Baroda
2013-2014 3.44 3.43 1.80

2014-2015 2.77 4.26 2.27

2015-2016 4.16 8.36 6.04

2016-2017 4.15 7.69 6.15

2017-2018 6.47 11.31 7.84

12

10

8
SBI
6
PNB

4 Bank of Baroda

0
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

Interpretation:
 This analysis indicates the Gross NPA to total assets Ratio of Public sector banks
i.e SBI, PNB and Bank of Baroda from 2014 till 2018.
 From the above chart we can clearly understand that rate of growth of Gross NPA
of SBI has decreased to 2.77% in 2015 from 3.44% in 2014 and after that it also
start increasing which raise up to 6.47% in 2018 whereas in PNB it is
continuously increasing since 2014 to 2018 which is 3.43% to 11.31%. The rate of
Gross NPA of Bank of Baroda is also increasing from 2014 to 2018 which is
1.80% to 7.84%.

55 | P a g e
 Net NPA’s to Total Assets Ratio (%)

Year SBI PNB Bank of

Baroda
2013-2014 1.73 1.80 0.92

2014-2015 1.35 2.55 1.13

2015-2016 2.37 5.31 2.84

2016-2017 2.15 4.54 2.60

2017-2018 3.21 6.36 3.26

4 SBI
PNB
3
Bank of Baroda
2

0
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

Interpretation:
 This analysis indicates the Net NPA to advances Ratio of Public sector banks i.e
SBI, PNB and Bank of Baroda from 2014 till 2018. As we know very well that
higher this ratio, moredangerous position it is for the banks.
 From the above chart we can clearly understand that rate of growth of Net NPA of
SBI has decreased to 2.12% in 2015 from 2.57% in 2014 and after that it also start
increasing which raise up to 5.73% in 2018 whereas inPNB it is continuously
increasing since 2014 to 2018 which is 2.84% to 11.22%. The rate of Gross NPA
of Bank of Baroda is also increasing from 2014 to 2018 which is 1.52% to 5.49%.

56 | P a g e
 SBI

Year Gross NPA Net NPA

Ratio Ratio
2013-2014 5.09 2.57

2014-2015 4.36 2.12

2015-2016 6.71 3.81

2016-2017 7.15 3.71

2017-2018 11.55 5.73

14

12

10

8
Gross NPA Ratio
6 Net NPA Ratio

0
2013-20142014-20152015-20162016-20172017-2018

Interpretation:

 This analysis indicates the relationship between Gross NPA ratio and Net NPA
ratio of SBI. Initially Gross NPA ratio has decreased to 4.36% in 2015 from 5.09%
in 2014 and after that it is showing increasing trend from 2015 to 2018 which is
4.36% to 11.55%. The Net NPA ratio has also decreased to 2.12% in 2015 and
afterwards it raised upto 5.73% in 2018.
 Above chart shows that gross NPA’s are more as compared to net NPA, which
means more provisions are made by SBI so as to reduce the risk of non recovery.

57 | P a g e
 PNB

Year Gross NPA Net NPA Ratio

Ratio
2013-2014 5.41 2.84

2014-2015 6.75 4.05

2015-2016 13.54 8.59

2016-2017 13.20 7.80

2017-2018 19.97 11.22

25

20

15
Gross NPA Ratio

10 Net NPA Ratio

0
2013-20142014-20152015-20162016-20172017-2018

Interpretation:

 This analysis indicates the relationship between Gross NPA ratio and Net NPA
ratio of PNB Gross NPA ratio has increased from 5.41% to 19.97% from the
period between 2014 to 2018. The Net NPA ratio is also showing the increasing
trend from 2.84% to 11.22% during 2014 to 2018.
 Above chart shows that gross NPA’s are more as compared to net NPA, which
means more provisions are made by PNB so as to reduce the risk of non recovery.

58 | P a g e
 Bank of Baroda

Year Gross NPA Net NPA Ratio

Ratio
2013-2014 2.99 1.52

2014-2015 3.80 1.89

2015-2016 10.56 4.96

2016-2017 11.15 4.72

2017-2018 13.21 5.49

14

12

10

8
Gross NPA Ratio
6 Net NPA Ratio

0
2013-20142014-20152015-20162016-20172017-2018

Interpretation:

 This analysis indicates the relationship between Gross NPA ratio and Net NPA
ratio of Bank of Baroda .Gross NPA ratio has increased from 2.99% to 13.21%
from the period between 2014 to 2018, it has shown severe increase from 3.80% to
10.56% in 2016. The Net NPA ratio is also showing the increasing trend from
1.52% to 5.49% during 2014 to 2018.
 Above chart shows that gross NPA’s are more as compared to net NPA, which
means more provisions are made by BoB so as to reduce the risk of non recovery.
59 | P a g e
 Provision to Gross NPA Ratio (%)

Year SBI PNB Bank of

Baroda
2013-2014 49.52 46.28 49.18

2014-2015 51.36 38.15 50.38

2015-2016 43.15 35.57 52.11

2016-2017 48.13 39.81 57.68

2017-2018 50.38 43.42 58.42

70

60

50

40 SBI
PNB
30
Bank of Baroda
20

10

0
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

Interpretation:

 This analysis indicates the Provision Ratio of SBI, PNB and Bank of Baroda from
2014 to 2018. As we know very well that higher this ratio, more safe position for
banks.
 In the above chart the provision ratio of SBI has increased initially to 51.36% in
2015 but then it decreased to 43.15% in 2016, however again it increased upto
50.38% in 2018. The ratio of PNB also decreased to 35.57% till 2016 and then it
increased to 43.42% in 2018. Whereas the ratio of Bank of Baroda is continuously
increasing since 2014 to 2018 from 49.18% to 58.42%.

60 | P a g e
 Standard Assets Ratio (%)

Year SBI PNB Bank of

Baroda
2013-2014 69.89 76.84 65.57

2014-2015 72.88 75.32 64.46

2015-2016 72.43 78.81 62.33

2016-2017 73.84 87.03 65.09

2017-2018 75.85 90.16 64.10

100
90
80
70
60
SBI
50
PNB
40
Bank of Baroda
30
20
10
0
2013-20142014-20152015-20162016-20172017-2018

Interpretation:

 This analysis indicates the Standard Asset Ratio of SBI, PNB and Bank of Baroda
from 2014 to 2018.
 Above diagram indicates that the Standard Assets Ratio of SBI is showing
increasing trend since 2014 to 2018 from 69.89% to 75.85%. The ratio of PNB has
also increased till 2018 from76.84% to 90.16%. However the scenario is different
in case of Bank of Baroda, where ratio has decreased till 2016 to 62.33% and but
then it increased in 2017 and again decreased to 64.10% in 2018.

61 | P a g e
 Sub-standard Asset Ratio (%)

Year SBI PNB Bank of

Baroda
2013-2014 4.73 5.55 11

2014-2015 3.77 12.97 5.63

2015-2016 1.27 14.58 1.46

2016-2017 2.6 2.07 3.92

2017-2018 2.1 3.03 6.83

16

14

12

10
SBI
8
PNB
6 Bank of Baroda
4

0
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

Interpretation:

 This analysis indicates the Sub-Standard Asset Ratio of SBI, PNB and Bank of
Baroda from 2014 till 2018. As we know very well that lower this ratio, more
advantageous it is for the banks.
 The above chart indicates that the Sub-Standard Asset ratio of SBI decreased
initially till 2016 to 1.27% and then it increased to 2.6% but again it decreased to
2.1% in 2018. The ratio of PNB also increased initially to 14.58% in 2016 but
then it decreased to 3.03% in 2018. The ratio of Bank of Baroda has decreased to
1.46% in 2016 and then it increased to 6.83% in 2018.

62 | P a g e
 Doubtful Asset Ratio (%)

Year SBI PNB Bank of

Baroda
2013-2014 19.83 0.45 20.97

2014-2015 21.82 2.63 28.23

2015-2016 25.88 6.46 33.82

2016-2017 23.39 10.9 27.73

2017-2018 21.5 4.83 25.85

40

35

30

25
SBI
20
PNB
15 Bank of Baroda
10

0
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

Interpretation:

 This analysis indicates the Doubtful Asset Ratio of SBI, PNB and Bank of Baroda
from 2014 till 2018.
 From the above diagram it can be seen that Doubtful Asset Ratio of SBI has
increased to 25.88% till 2016 and then it decreased to 21.5% in 2018. The ratio of
PNB increased initially to 10.9% till 2017 and then it decreased to 4.83% in 2018.
The ratio of Bank of Baroda is also showing the increasing trend till 2016 which is
33.82% and then it decreased to 25.85% in 2018.

63 | P a g e
 Loss Asset Ratio (%)

Year SBI PNB Bank of

Baroda
2013-2014 1.22 0.11 2.46

2014-2015 1.53 0.07 1.58

2015-2016 0.42 0.15 2.39

2016-2017 0.17 0.43 3.26

2017-2018 0.55 0.53 3.22

3.5

2.5

2 SBI
PNB
1.5
Bank of Baroda
1

0.5

0
2013-20142014-20152015-20162016-20172017-2018

Interpretation:

 This analysis indicates the Loss Asset Ratio of SBI, PNB and Bank of Baroda
from 2014 till 2018. As we know very well that lower this ratio, more
advantageous it is for the banks.
 Above diagram indicates that the ratio of SBI has decreased to 0.55% from 1.22%
in the period between 2014 to 2018. However the ratio of PNB is showing
continuous increase till 2018 from 0.11% to 0.53%. The ratio of Bank of Baroda
has also increased since 2014 to 2018 from 2.46% to 3.22%.

64 | P a g e
 SBI

Year Net Profit Net NPA

2013-2014 10891.17 31096.07

2014-2015 13101.57 27590.58

2015-2016 9950.65 55807.02

2016-2017 10484.10 58277.38

2017-2018 (6547.45) 110854.70

120000

100000

80000

60000 Net Profit

40000 Net NPA

20000

0
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018
-20000

Interpretation:

 This analysis indicates the impact of Net NPA on Net profit of SBI from 2014 till
2018.
 The above diagram indicates that when NPA is Rs.31096.07cr, profit is
Rs.10891.17cr in 2014. When NPA increases to Rs.110854.70cr in 2018 bank
incurred loss of Rs.6547.45cr.
 Hence it indicates that when NPA increases profit of the bank decreases.

65 | P a g e
 PNB

Year Net Profit Net NPA

2013-2014 3342.58 9916.99

2014-2015 3061.58 15396.50

2015-2016 (3974.40) 35422.56

2016-2017 1324.80 32702.10

2017-2018 (12282.82) 48684.29

60000

50000

40000

30000
Net Profit
20000
Net NPA
10000

0
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018
-10000

-20000

Interpretation:

 This analysis indicates the impact of Net NPA on Net profit of PNB from 2014 till
2018.
 The above diagram indicates that when NPA is Rs.9916.99cr, profit is
Rs.3342.58cr in 2014. When NPA increases to Rs.48684.29cr in 2018 bank
incurred loss of Rs.12282.82cr.
 Hence it indicates that as NPA of the bank increases profit decreases and it result
into losses.

66 | P a g e
 Bank of Baroda
Year Net Profit Net NPA

2013-2014 4541.08 6034.76

2014-2015 3398.44 8069.49

2015-2016 (5395.54) 19046.46

2016-2017 1383.14 18080

2017-2018 (2431.81) 23483

25000

20000

15000

10000 Net Profit

5000 Net NPA

0
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018
-5000

-10000

Interpretation:

 This analysis indicates the impact of Net NPA on Net profit of Bank of Baroda
from 2014 till 2018.
 The above diagram indicates that when NPA is Rs.6034.76cr, profit is
Rs.4541.08cr in 2014. When NPA increases to Rs.23483cr in 2018 bank incurred
loss of Rs.2431.81cr.
 Hence it indicates that whenever NPA goes up profit of the bank gets reduced.

67 | P a g e
 CHAPTER-6

CONCLUSION & SUGGESTION

Conclusion
 The NPA is one of the biggest problems that the Indian Banks are facing today. If
the proper management of the NPAs is not undertaken it would hamper the
business of the banks. If the concept of NPAs is taken very lightly it would be
dangerous for the Indian banking sector. The NPAs would destroy the current
profit; interest income due to large provisions of the NPAs, and would affect the
smooth functioning of the recycling of the funds.
 Banks also redistribute losses to other borrowers by charging higher interest rates.
Lower deposit rates and higher lending rates repress savings and financial markets,
which hampers economic growth.
 The Non-Performing Assets have always created a big problem for the banks in
India. It is just not only problem for the banks but for the economy too. The
money locked up in NPAs has a direct impact on profitability of the bank as Indian
banks are highly dependent on income from interest on funds lent.
 This study shows that extent of NPA is comparatively very high in public sectors
banks. Although various steps have been taken by government to reduce the NPAs
like S4A (Scheme for Sustainable Structuring of Stressed Assets) and
Indradhanush Scheme but still a lot needs to be done to curb this problem. The
NPAs level of our banks is still high. It is not at all possible to have zero NPAs.
The bank management should speed up the recovery process.
 The problem of recovery is not with small borrowers but with large borrowers.
The big borrowers such as Vijay Mallya has done fraud with SBI in 2016 bank
which caused increase in NPA and decrease in profit of SBI. Nirav Modi also did
not pay his debts off which he borrowed from PNB in 2018 which caused an
increase in NPA. So a strict policy should be followed for solving this problem.
 The government should also make more provisions for faster settlement of
pending cases and also it should reduce the mandatory lending to priority sector as
this is the major problem creating area. So the problem of NPA needs lots of
serious efforts otherwise NPAs will keep killing the profitability of banks which is
not good for the growing Indian economy at all.

68 | P a g e
69 | P a g e
 Suggestion

 New body like Debt Recovery Tribunal should be established & capacity of DRTs
should be enhanced.
 All banks should keep stringent check on advances being made during the time.
 Bank of Baroda should focus more on recovery of doubtful assets.
 Banks should increase their income from sources other than interest, as rise in
NPA due to default in interest income may affect the profits drastically.
 RBI should revise existing credit appraisals and monitoring systems.
 Banks should improve upon and strengthen their loan recovery methods.
 Credit appraisal and post–loan monitoring are crucial steps which need to be
concentrated by all the banks.
 There must be regular follow-up with the customers and it is the duty of banker to
ensure that there is no diversion of funds. This process can be taken up at regular
intervals.
 Personal visits should be made after sanction and disbursal of credit and further
close monitoring of the operations of the accounts of borrowed units should be
done periodically.
 Advances provided by banks need pre-sanctioning evaluation and post-
disbursement control so that NPA can decrease good management needed on the
side of banks to decrease the level of NPA.
 Proper selection of borrowers & follow ups required to get timely payment.

70 | P a g e
 CHAPTER-7
BIBLIOGRAPHY

71 | P a g e