Stress Testing of Non Performing Assets in Priority Sector lending –

An Impact Assessment of SBI Portfolios

M. Maheswaran, Research Scholar, Suresh Gyan Vihar University, Jaipur, India

Dr.D.N.Rao, Vice Chancellor, Suresh Gyan Vihar University, Jaipur, India

Abstract
This study provides a framework for establishing Stress Test on NPAs among Priority Sector. As State
Bank of India is the leading Public Sector Bank in the country, its exposure to NPAs specifically to
sector based exposure on outstanding amounts and its prediction could be a guiding post for further
research. In this paper, the exposure across multiple priority sectors of SBI is binned in line with
economic activity. Totally eight clusters are created and 20 models are created to predict economic
attributes and cluster specific stress testing equation. The study identified econometric determinants
and found significant relationship to select clusters with multiple components of GDP. Finally, the
researchers have created six scenarios including severely Adverse and Most Promising. The study has
also established key insights on overall exposure and its impact on NPAs under Six Scenarios. The
approach to stress test is likely to help risk managers in internally developing a framework specific to
their banks.

Key Words: Stress Testing, Non Performing Assets / Loans, Dodd-Frank Act, Priority Sector, Risk
Management, Economic Determinants

Introduction
The resilience of Indian Banks during the subprime crisis exhibited Reserve Bank of India’s financial
prudence and success of India’s regulatory framework. Besides India’s strong banking system,
reasons such as minimal exposure to international troubled assets and lesser presence of foreign
banks were also instrumental for its buoyancy. However by assessing the Non Performing Assets
(NPA) of Indian Banks, the lessons learnt from A Trillion Dollar Meltdown in U.S. banks need to be
assessed as precedence. For an instance, NPA of Indian Banks is hovering around Rupees Two Trillion
and the combined NPA of 21 Public Sector Banks (PSB) increased by 50% between Q4 FY’14 and Q4
‘FY13.

Ever since the nationalisation of Banks since 1960, PSB’s role for social outreach and prioritised
funding of chosen economic sectors has shown growth in critical areas for overall economic
development. At the same time, few of the PSBs have witnessed NPAs beyond five percent. The
NPAs of top PSBs like Central Bank of India and Punjab National Bank were at 6.27% and 5.25%
respectively. In the case of State Bank of India, which is the largest PSB in India, the Gross NPAs to
gross advances has touched 4.97% in March 2014. Besides such mounting NPAs, as India is at the
threshold of Basel III implementation on capital norms, the PSBs are estimated to have Rs. 2.4 trillion
of recapitalisation.

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Stress Testing of Non Performing Assets in Priority Sector lending – An Impact Assessment of SBI Portfolios
M. Maheswaran and Dr. D.N. Rao, June 2014.

Electronic copy available at: http://ssrn.com/abstract=2450399

In view of the above developments, this study is focused on establishing stress test on various
clusters of Priority Sector lending with macro-economic determinants. Since SBI is the leading PSB in
India, this paper focuses on SBI’s priority sectors as published in its Pillar 3 Disclosures from its Basel
III Framework. In the wake of mounting NPAs, Stress Test helps to simulate multiple economic
scenarios across sector-specific NPAs and its sensitivity to adverse economic conditions.

Literature Review
The International Monetary Fund (IMF) developed robust stress testing methods and advocated two
approaches to develop stress scenarios (Andreas A. Jobst et al, 2013). In its Direct Approach,
scenarios may reflect a hypothetical state of risk parameters under stress affecting solvency
conditions. In its Indirect Approach, adverse macroeconomic scenarios need to be indirectly
translated into financial stress parameters consisting of economic and financial variables.

Simone Varotto (2011) conducted a research study by employing Moody’s corporate default and
rating transition data. The study fitted a linear trend on annual default rates for the various rating
categories. In few rating categories, it was found that Basel III buffers were inadequate to provide a
cushion against Great Depression style losses for all portfolios and holding periods with the
exception of high and average quality portfolios over a 1 year horizon. William Nayda (2012)
conducted another similar research and classified Risks into Bank-level risks, Portfolio-level risks and
Loan-level risks. The study pointed out the need for adopting a simpler statistical analysis and
gradually moving to sophisticated analysis. A simple regression analysis can help to understand the
main drivers and their relationships.

Piotr Masiukiewicz and Paweł Dec (2013) felt Stress Test to be considered a necessary tool and
activity during the new threats to the financial crisis in the world. The authors shared their
experience of applying stress tests across the European financial market. Davit Utiashvili and Robert
Tchaidze (2009) attempted to develop a stress testing methodology for Georgian financial sector.
Their thesis built econometric equation taking into account the adverse economic scenarios on
borrower default. They used variables such as Exchange rate, House Price index, Stock Exchange
Index, inflation (CPI), Interest Rate, Bank Performance - Return on Equity or Return on Asset
(ROE/ROA) and GDP growth for building scenarios of NPL variations.

The study by Tushith Islam, Christos Vasilopoulos, Erik Pruyt (2013) created multiple scenarios and
identified multiple behavioural patterns. It identified that in worst case scenarios, the bank faced
bankruptcy mainly due to paucity of liquid assets. This scenario observed on liquid assets owed to
the face that withdrawal rates were high as a result of severe stress events.

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Stress Testing of Non Performing Assets in Priority Sector lending – An Impact Assessment of SBI Portfolios
M. Maheswaran and Dr. D.N. Rao, June 2014.

Electronic copy available at: http://ssrn.com/abstract=2450399

The paper developed by Nasser Saidi (2009) advocated the need for a Sound and Stable Financial
System. The financial Crisis brought into lime light the importance of adequacy, relevance and use of
financial vulnerability indicators, stress tests and ‘early warning systems’. For a stable financial
system, three elements such as Adequate macro prudential surveillance, Effective supervision and
Sound financial infrastructure & systems are essential.

Regarding NPAs in Indian Banks, Anshu Bansal (2012) explored problems faced by banks in the
swelling non-performing assets (NPAs) and its accumulation and reason for an efficient risk
management. Trends during the study period showed that NPAs of Priority Sector was volatile; 58%
in 2011, 55% in 2009. and 59.46% in 2007. While modeling NPAs of Midsized Indian Nationalized
Bank, Rajveer Rawlin (2012) identified significant positive relationship between the loan-loss rate
and internal factors such as high interest rates, excessive lending, and volatile funds and also
external factors such as depressed regional economic conditions.

It is observed that NPAs impacts profitability of Commercial Banks In India. According to

C.S.Balasubramaniam (2012), The growth in NPAs of Indian banks has largely followed a lagged
cyclical pattern with regard to credit growth, the pro-cyclical behaviour of the banking system,
wherein asset quality can get compromised during periods of high credit growth and this can result
in the creation of NPAs for banks in the later years.

Mohd. Mohsin and Md. Aktar Kamal (2012) observed that devising stress test, the risk managers can
identify and recognize the character of firm’s exposure as well as the relative strengths and
weaknesses of stress test analysis and other techniques to better simulate the risks at different
hypothetical economic crises.

From the above literature reviews, one can identify the importance of stress test and multiple
methodologies that are getting adopted as part of Basel Compliance. While multiple studies have
highlighted the need for stress test, the mounting pressure of NPAs especially with the largest PSB
needs more insights into its sensitivity to the changes in the components of Indian Economy. This
study establishes stress test specific to priority sector lending of SBI for the period between 2010
and 2014.

Methodology
Modeling technique
The modeling technique used to arrive at the forecasts is the Multivariate regression using ordinary
least squares. The form of the model is y = a0 + a1*x1 + a2*x2 +... +an*xn + Ei
Where X1…. Xn are the predictors of the model
Where a0 is the intercept and a1… an are the parameters of the model

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Stress Testing of Non Performing Assets in Priority Sector lending – An Impact Assessment of SBI Portfolios
M. Maheswaran and Dr. D.N. Rao, June 2014.

Electronic copy available at: http://ssrn.com/abstract=2450399

Where Ei =residual/error for the ith observation.

Lagged dependent variables (LDV)

To have an impact of previous year’s economic growth on current year performance, Lagged value is
used. LDV have been used in regression analysis to provide robust estimates of the effects of
independent variables (Arjun S. Wilkins, 2013).

Variable transformation
Since the researchers need to bring in a combination of economic variables, multiple components of
Gross Domestic Product are mathematically transformed. A transformation generates a new variable
from existing variables according to a mathematical formula. The technique of Power
transformations for quantitative variables is used by applying Square Root to the lagged variable.
Often we can “straighten” a nonlinear relationship by transforming one or both of the variables
(William G. Jacoby, 2005). Similarly by using ratios of two different components of Gross Domestic
Product (GDP), appropriate weights can be assigned for multiple variables. In this paper, usage of
ratios such as Mining & Quarry (MQ) /Lag MQ, Service/Manufacturing, Industry/(Agriculture & Allied
Services) and Services/GDP are treated to assess its Stress impact on NPAs.

Using time residuals

Most of the variables such as GDP, Services, Industry lack the property of stationarity and in order to
make it consistent, the non-stationary data is transformed into stationary data. Detrending the data
is done to remove the impact of time on the variables under study. Treatment for detrending is done
by running a regression of each of the variables in the study on a time index for validation.

Data Source & Compilation

A consolidated financial statement of SBI group conforms to Generally Accepted Accounting
Principles (GAAP) in India and periodically provides a consolidated Pillar 3 Disclosures. For the study
purpose, reports under DF-3: Credit Risk: General Disclosures For All Banks and Table- A: DF-3 (d)
Industry Type Distribution of Exposures of period between 2010 and 2014 are consolidated.

SBI provides funds to 27 different priority sectors besides Reserves Advances to balance Gross
Advances. For a logical conformity and for simpler analytical framework, the researchers combined
27 sectors into 8 clusters as given in Table-I in Annexure-I. A bottom-up Stress Test is created by
estimating for each cluster and is combined to compute overall scenarios for different level of stress
for the entire priority sector.

Economic specific attributes for GDP and its components are referred from reports published by
Planning Commission of India. To compute Overall Exposure, GDP is used at its Actual Value at

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Stress Testing of Non Performing Assets in Priority Sector lending – An Impact Assessment of SBI Portfolios
M. Maheswaran and Dr. D.N. Rao, June 2014.
Current Prices estimated using at Factor Cost. Similarlly for NPA modeling, GDP’s Growth Rate is
used at current prices.

Hypothetical Scenarios of Stress Test

As per Dodd-Frank Act Stress Test, three supervisory stress test scenarios are mandatory: Baseline,
Adverse, and Severely Adverse. As each cluster of priority sectors behave uniquely and impacted by
multiple economic attributes, this paper estimates stress test in Promising Scenario where economy
touches double digit growth.

Table -1 Multiple Scenario for Stress Test

Adverse Scenario GDP Growth at Promising GDP Growth at

Current Prices Scenario Current Prices
Baseline -12% Baseline +12%
Adverse -20% Promising +20%
Severely Adverse -25% Most Promising +25%

Treatment for Input Variables

Input variables mainly consist of components of GDP and as per the Promising scenario growth rate,
it is computed assuming three variation 12%, 20% and 25%. Similarly for Adverse Scenario, GDP is
assumed to decelerate by 12%, 20% and 25%. However for estimating GDP components, Agriculture
& Allied Services, Agriculture, Industry, Mining and Quarrying, Manufacturing, and Services, simple
linear regression estimation is used to arrive at GDP specific components.

Analysis
SBI declares outstanding amounts for both Fund Based and Non-Fund Based exposure of Priority
Sector lending. The study covers Fund Based Outstanding which comprises of stressed assets under
both Standards and NPA. Between 2011 and 2014, the Fund Based Outstanding has increased by
49.6%. During this period, NPAs for Priority Sectors increased by 153.7%. Year on year, the NPA
share among Fund Based Exposure has increased from 2.9% to 5.0% during the study period.

By assessing the descriptive statistics (as given in Table-II in Annexure-I) of various clusters and its
respective growth rate, exposure to Construction (CON) sector is highly volatile. Exposure to Services
(SERV) which comprises of Computer Software, NBFCs & Trading sectors has been the most
consistent. Exposure to Manufacturing (MFG) (Leather & Leather Products, Gems & Jewellery)
during the study period has grown by more than 200% contrary to Industries (IND) which has grown
by only 24%. While exposure to INFRA Cluster grew only by 24%, NPA has witnessed the highest
growth by 248%. With such a volatile and complex composition of exposures, it is imperative for risk
managers to assess the exposures and simulate NPAs for a healthier portfolio.

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Stress Testing of Non Performing Assets in Priority Sector lending – An Impact Assessment of SBI Portfolios
M. Maheswaran and Dr. D.N. Rao, June 2014.
Figure -1 NPA and Exposure Ratio across Clusters

60.0%
Clusters like AAS and IND have
2011 2012 2013 2014 been growing year on year
50.0%
from 4.1% to 9.2% and 5.6% to
40.0% 7.1% respectively. CON cluster
30.0% despite witnessing a spike
during 2012-2013, bounce
20.0%
back to normalcy in the
10.0% following year. Petrol is
0.0% maintaining a marginal ratio
with NPA to Exposure at 0.1%.

Cluster Specific Economic Determinants

Grouping of 27 industries into 9 clusters have guided to use appropriate economic attributes. It is
observed that relevant industry specific GDP contribution is driving the exposure to pertinent
priority sector. The M&Q cluster is driven by GDP contribution from Mining & Quarry of the previous
year. The combination of Industry output and the balance sector has been driving IND Cluster.
Clusters such as Construction had a highly volatile growth and the same was reflected in the
Standard Deviation. This cluster needed special treatment such as GDP difference between periods
and Dummy variable is explored. Dummy variables play an important role in the analysis of data,
whether they are real-valued variables, categorical data, or analog signals. Typically, dummy
variables are used in the following applications: time series analysis with seasonality or regime
switching (Susan Garavaglia et al, 2004).

Exposures furnished by SBI included outstanding from both Standard and NPA and hence taken on
its absolute value. For each of the chosen cluster of priority sector, the usage of industry specific
economic attribute found to be highly impactful. The exposure to the Agriculture & Allied Services
cluster found good fit with the Services Economy besides the Agro-Economic contribution to GDP.
Exposure to Infrastructure is steadily growing and time attribute explained its trend with a positive
GDP contribution. Relevant model equation is furnished in Table-2. Statistical Estimation of Accuracy
Parameters for Estimating Overall Exposure is furnished in Table – III of Annexure.

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Stress Testing of Non Performing Assets in Priority Sector lending – An Impact Assessment of SBI Portfolios
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Table -2 Model Attributes for Computation of Overall Exposure of Select Cluster

Title Cluster Overall Exposure Model

M&Q Mining & Quarry 24525.885+3296.2154*DUM1-13582.901*Lag VMQ
IND Industry 978492.12-92.643836*[Sqrt(Lag GDP-Lag VIND)]-311.48809 *
[Sqrt(Lag VIND)]
AAS Agriculture & Allied Services 12075.172-0.1985965*Lag VAAS+.07565241*Lag VSERV
MFG Manufacturing 37527.369-0.4846881*Lag VMFG+0.09783891*(Lag GDP-Lag
VIND)
SERV Services 26817.59+0.0152815* Lag VSERV
INFRA Infrastructure -386940.83+156748.77*[(1/Sqrt(time))]+0.05077559*(Lag GDP)
CONS Construction -100035.95-10083.413*[Sqrt(GDP (t-1)-GDP(t-2))]
PETR Petroleum 31024.587-0.2446809*Lag VMFG+0.06511747 * Lag VSERV

By combining all nine models, the overall exposure is estimated and as the model has captured
critical trends, both actual and predicted exposure volumes for 2010-14 are at par. For the
computation of NPA, contribution of overall outstanding as percentage is used and as can be seen in
Table-2, the overall GDP growth rate had significant impact across all portfolios. Statistical
Estimation of Accuracy Parameters for Estimating NPA is furnished in Table – IV of Annexure.

Table -3 Model Attributes for Computation of NPA of Select Cluster

Title Cluster NPA Model

M&Q Mining & Quarry -0.21593 +0.07767 * SQRT(Time) + 0.90819 * GDP Gr
IND Industry -0.18305 +0.03983 * Time + 0.91864* GDP Gr
AAS Agriculture & Allied Services 0.12066 +0.03308 * Time + 0.70025 * GDP Gr
MFG Manufacturing -0.16139 +0.05573 * SQRT(Time) +0.8435 * GDP Gr
SERV Services -0.03474+0.004004* Time+0.52104 * GDP Gr
INFRA Infrastructure -0.01656 + 0.00596 * Time + 0.09805 * GDP Gr
CONS Construction 2.47397 -0.26595* Time -11.64906* GDP Gr
PETR Petroleum 0.000451 +0.000552* Dummy + 0.001829 * GDP Gr

The modus operandi applied in the paper is twofold. Initially the overall exposure of outstanding is
computed by building eight models. Later NPA is measured by percentage and eight more models
were built to predict for 2014-15. Both overall exposure as well as NPA was estimated for six
scenarios as mentioned in Table-1 for both Adverse and Promising Scenarios. The actual value of
NPA is derived from the predicted exposure in proportion to predicted NPA percentage.

Findings & Discussion

This paper establishes stress test and simulates for both Promising Scenario as well as Adverse
Scenario. As GDP is kept as benchmark indicator, its growth rate is estimated at current price for

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Stress Testing of Non Performing Assets in Priority Sector lending – An Impact Assessment of SBI Portfolios
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three ranges: Baseline at 12%, Promising at 20% and Most Promising at 25%. Conversion at constant
prices can be made by treating inflation at specific base period.

Table -4 Overall Exposure Scenarios

Overall Exposure STD+NPA %

Promising Scenario GDP Impact % Adverse Scenario GDP Impact %
Growth Growth
Baseline 12% -9.28% Baseline -12% 7.30%
Promising 20% -11.09% Adverse -20% 16.57%
Most Promising 25% -10.84% Severely Adverse -25% 23.75%
Overall Exposure STD+NPA - Rs Crs
Promising Scenario GDP Impact Rs. Adverse Scenario GDP Impact Rs.
Growth Growth
Baseline 12% 9,94,709 Baseline -12% 11,76,501
Promising 20% 9,74,873 Adverse -20% 12,78,086
Most Promising 25% 9,77,569 Severely Adverse -25% 13,56,839

It is observed that when the economy is in expansion spree, not all the clusters behave evenly or in
the same direction. Clusters such as Industry, Manufacturing, Mining & Quarry have shown reversal
trends. As economy grows, exposure to these three clusters is likely to show significant reduction. It
could be interpreted that on a growing economy, these priority sectors are likely to be given lesser
priority by PSB, thereby causing contraction of loan disbursements. PSBs could find more confidence
to fund Agriculture & Allied Cluster besides Infrastructure and exposure can increase as much as
20%. In a bullish economy, the priority sector is to witness a double digit contraction to the overall
exposure.

In an adverse stress scenario, as in Table-4, priority sectors are likely to be used as priming
mechanism to push growth. In a Severely adverse scenario and on populist measure, government
can expand priority funding in the range of Rs. 11.7 to 13.5 trillion. The overall exposure of SBI to
GDP fluctuation is high when economy touches the extremes. Elasticity between GDP growth and
Impact percentage is as high as -95% during the severely adverse scenario.

The estimation of Exposure to Priority Sector is primarily aimed at creating a base for establishing
Stress Test on its relevant NPAs. Elasticity for both Promising and Adverse Scenarios on Baseline is
+64% and -64% respectively. This indicates that NPA is equally significant and it responds to GDP
changes effectively at Baseline. However, when the economy deteriorates or improves further
towards Most Promising and Severely Adverse, NPA responds favourably signifying better asset
quality.

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Stress Testing of Non Performing Assets in Priority Sector lending – An Impact Assessment of SBI Portfolios
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Table -5 Exposure of NPA Scenarios

NPA Exposure %
Promising Scenario GDP Impact % Adverse Scenario GDP Impact %
Growth Growth
Baseline 12% 7.73% Baseline -12% 7.67%
Promising 20% 11.84% Adverse -20% 13.34%
Most Promising 25% 14.12% Severely Adverse -25% 17.01%
NPA Exposure - Rs Crs
Promising Scenario GDP Impact Rs Adverse Scenario GDP Impact
Growth Crs. Growth Rs Crs.
Baseline 12% 76,934 Baseline -12% 90,199
Promising 20% 1,15,404 Adverse -20% 1,70,517
Most Promising 25% 1,38,063 Severely Adverse -25% 2,30,804

Contrary to the belief that in a growing economy, NPAs would come down, the findings as in Table-5
establishes the fact that the NPAs as part of overall outstanding is likely to move upwards.
Incidentally in a severely adverse scenario, NPA tend to be higher only by 3%. However since the
overall exposure would be higher, the 3% difference could impact as high as Rupee one trillion. In
such a situation, capital adequacy compliance could lead to severe stress in the overall performance
of the bank.

Further Scope
The scope of this paper is limited to establish a stress test of NPA and identify macroeconomic
determinants impacting the overall exposure. A logical extension of this study is to include Capital
Adequacy. Such an extension could establish whether a bank has sufficient capital to absorb losses
resulting from adverse economic conditions. (Board of Governors, March 2013).

Besides estimating Capital Adequacy, the scope can further be enhanced to cover Non-Fund Based
outstanding. Clustering across Priority Sector is done by logical association of industries and further
research can be done by using statistical segmentation based on decision tree to compute clusters.

The study is done only by considering SBI and further research is required to cover other PSBs
besides leading private banks.

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Stress Testing of Non Performing Assets in Priority Sector lending – An Impact Assessment of SBI Portfolios
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References

Andreas A. Jobst, Li Lian Ong and Christian Schmieder (2013),A Framework for Macroprudential Bank
Solvency Stress Testing: Application to S-25 and Other G-20 Country FSAPs,IMF Working Paper-
WP/13/68, March 2013
Anshu Bansal (2012), "A Study On Recent Trends In Risk Management Of Non Performing Assets
(NPAs) By Public Sector Banks In India, Volume 3, Issue 1, Journal of Information and Operations
Management, March, 2012
Arjun S. Wilkins, Stanford University, Stanford, CA 94305-6044 accessed from:
www.stanford.edu/~arjunw/LaggedDVs.pdf 2013
Board of Governors, March 2013, “Dodd-Frank Act Stress Test 2013: Supervisory Stress Test
Methodology and Results”, accessed from: www.federalreserve.gov/publications/default.htm.
C.S.Balasubramaniam (2013), "Non Performing Assets and Profitability of Commercial Banks in India:
Assessment and Emerging Issues, VOLUME NO.1, ISSUE NO.7, ABHINAV, Dec 2013
Davit Utiashvili and Robert Tchaidze (2009),"Stress Testing of Financial Sector",Thesis - International
School of Economics at TSU (ISET)- June 2009
Mohd. Mohsin and Md. Aktar Kamal (2012),"Managing Stress Test for Banks: A Case Study on Ten
Commercial Banks In Bangladesh",Journal of Business and Management,Volume 2, Issue 5 (July-Aug.
2012), PP 11-23
Nasser Saidi (), "Macroeconomic Perspective on Financial Vulnerability Indicators and Bank Stress
Tests", Dubai International Financial Centre
Piotr Masiukiewicz and Paweł Dec (2013),"Stress Tests in Banking – main theoretical and practical
aspects"Indian Journal of Applied Research, Volume:3-Issue 7-July 2013-ISSN - 2249-555X
Rajveer Rawlin,Shwetha M Sharan and Pradeep B Lakshmipathy (2012), "Modeling the NPA of a
Midsized Indian Nationalized Bank as a Function of Advances", Vol 4, No.5, European Journal of
Business and Management, May, 2012
Simone Varotto(2011), "Stress Testing Credit Risk:The Great Depression Scenario",ICMA Centre –
Henley Business School, University of Reading,30 August 2011
Susan Garavaglia and Asha Sharma, Dun & Bradstreet, Murray Hill, New Jersey 07974 , "A Smart
Guide to Dummy Variables: Four Applications and a Macro," accessed from:
/http://www.ats.ucla.edu/stat/sas/library/nesug98/p046.pdf, (2004).
Tushith Islam, Christos Vasilopoulos, and Erik Pruyt (2013),"Stress-Testing Banks under Deep
Uncertainty",Delft University of Technology, The Netherlands
W.G.Jacoby, "Regression III: Advanced Methods," 2005.(Online). accessed from:
http://polisci.msu.edu/jacoby/icpsr/regress3/lectures/week1/4.Transformations.pdf
William Nayda (2012),"Stress Testing Methodologies and Tools",The RMA Journal,September 2012

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Stress Testing of Non Performing Assets in Priority Sector lending – An Impact Assessment of SBI Portfolios
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ANNEXURE - I

Table – I Cluster Compilation of Priority Sector

Sl.No Title Cluster Priority Sector
1 M&Q Mining & Quarry Coal, Mining
2 IND Industry Iron & Steel, Metal Products, All Engineering, Electronics,
Electricity, Cotton Textiles, Jute Textiles, Other Textiles,
Chemicals / Dyes / Paints etc., Cement
3 AAS Agriculture & Sugar, Tea, Food Processing, Vegetable Oils & Vanaspati,
Allied Services Tobacco / Tobacco Products, Paper / Paper Products, Rubber /
Rubber Products
4 MFG Manufacturing Leather & Leather Products, Gems & Jewellery
5 SERV Services Computer Software, NBFCs & Trading
6 INFRA Infrastructure Power, Telecommunication, Roads & Ports

Table – II Descriptive Statistics Exposure and NPAs in Growth Rate (2011-2014)

Exposure NPAs
Clusters SD Average Growth Clusters SD Average Growth
2011-2014 2011-2014
AAS 0.170 21.5% 44% AAS 0.407 61% 290%
CON 1.442 45.8% 76% CON 0.287 4% 5%
IND 0.128 7.8% -17% IND 0.323 53% 242%
INFRA 0.143 28.5% 24% INFRA 0.161 71% 397%
M&Q 0.471 18.3% 109% M&Q 0.218 27% 101%
MFG 0.477 50.9% 43% MFG 0.961 61% 190%
PETROL 0.380 34.9% 213% PETROL 1.117 82% 248%
SERV 0.115 13.2% 128% SERV 0.265 -1% -10%

Table – III Statistical Estimation of Accuracy Parameters for Estimating Overall Exposure
Parameters AAS IND INFR MFG M&Q SERV CON PETROL

Multiple R 0.999 0.995 1.000 0.995 0.962 0.954 0.997 0.998

R Square 0.999 0.989 1.000 0.991 0.925 0.910 0.994 0.997
Adjusted R 0.997 0.968 0.999 0.973 0.774 0.866 0.983 0.991
Square
Standard Error 972.429 6651.801 1072.560 3796.438 1271.937 4935.045 674.041 1284.727

Table – IV Statistical Estimation of Accuracy Parameters for Estimating NPA

Parameters AAS IND INFR MFG M&Q SERV CON PETROL
Multiple R 0.9959 0.9962 0.9991 0.9508 0.9924 0.9960 0.9998 0.9645
R Square 0.9918 0.9925 0.9982 0.9040 0.9848 0.9919 0.9996 0.9303
Adjusted R 0.9754 0.9775 0.9945 0.7120 0.9543 0.9758 0.9987 0.7908
Square
Standard Error 0.0033 0.0035 0.0003 0.0042 0.0017 0.0020 0.0042 0.0001

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Stress Testing of Non Performing Assets in Priority Sector lending – An Impact Assessment of SBI Portfolios
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