Study with the several resources on Docsity
Earn points by helping other students or get them with a premium plan
Prepare for your exams
Study with the several resources on Docsity
Earn points to download
Earn points by helping other students or get them with a premium plan
Community
Ask the community for help and clear up your study doubts
Discover the best universities in your country according to Docsity users
Free resources
Download our free guides on studying techniques, anxiety management strategies, and thesis advice from Docsity tutors
This study evaluates the operational performance of selected public and private sector banks in India, analyzing their efficiency in managing non-performing assets (NPAs). It provides a comparative analysis of NPAs between the two sectors over the past 5 years, examining the impact on profitability and net worth. The study utilizes secondary data to compare key ratios, finding that the growth rate of gross NPAs is higher for public sector banks, which also exhibit a stronger negative correlation between NPAs and profits. The results suggest private sector banks manage NPAs more efficiently.
Typology: Cheat Sheet
1 / 45
This page cannot be seen from the preview
Don't miss anything!
i
I, Meera Gediya undersigned, a student of Department of business and industrial management VNSGU, Surat. declare that the project report entitled"Comparative study on NPA of public sector bank and private sector bank"prepared & submitted To Dr. Vatsal Patel Asst. Professor of Department of business and industrial management, Surat. This is my own work & the report prepared there in is based on my study and experience, during the tenure of my study.
I will not use this project report in future and will not submit the same to any other university or institute or any other publisher without written permission of my guide. I further declare that the result of my findings & research in the subject is original in nature and has not been previously submitted either in part or in whole to any other institute or university for any degree. If it is found, I shall be only responsible for its consequences.
Date: 19l21 (^) Roll no: 31
iii
No good task can be completed without the help of others. After the completion of this
project, I feel it is necessary to think who helped me and cooperated with during the project. I
would like to take an opportunity to express the feeling of gratitude towards Veer Narmad
South Gujarat University as a part of Comprehensive Project Report as a duty of syllabus of
MBA programme. I take opportunity to express my deep sense of gratitude to
Dr.RenukaGarg , professor & Head of department of business & industrial management, for
her indirect but consistent encouragement to the research and development. I express my
profound sense of gratitude to Dr.Vatsal Patel my project guide, who provided me
undeviating encouragement, indefatigable guidance and valuable suggestions throughout the
research project. I am very sincerely & heartily grateful to her for providing me a great break
by selecting me as a researcher under her. Last but not the least, I would like to thank my
family, my friends and respondents for supporting me spiritually throughout writing this
research and my life in general.
GEDIYA MEERA RAMESHBHAI
S.Y MBA
ROLL NO:
iv
Banking sectors is exposed to number of risk like market risk, interest rate risk, liquidity risk,
borrower‟s risk, and among these many risk the bank face one of the most critical is the
borrowers risk – the risk of non payment of the disbursed loans and advances. As big chunk
of deposits fund is invested in the form of loans and advances. Hence, parameters for
evaluating the performance of banks have also changed. This study provides an empirical
approach to the analysis of profitability indicators w ith a focal point on non-performing
assets (NPAs) of public and private sector banks. NPAs reflect the performance of banks. The
earning capacity and profitability of the banks are highly affected because of the existence of
NPAs .A high level of NPAs suggests that large number of credit defaults that affect the
profitability and net-worth of banks. Private and public Sector banks are highly affected by
this three letter virus NPA. In this study an effort has been made to evaluate the operational
performance of the selected PSBs & Private bank in India and also analyse how efficiently
Public and Private sector banks can managing NPA.
Non performing assets are one of the major concerns for banks in India. NPAs reveal the
performance of banks. It affects the liquidity and profitability of banks. Growing non
performing assets is a recurrent problem in the Indian banking sector. The NPAs growth has a
direct impact on profitability of banks. It involves the necessity of provisions, which reduces
the overall profits and shareholders‟ value. The problem of NPAs is not only affecting the
banks but also the whole economy. In this article, a comparative study has been made
between NPA of public sector banks and private sector banks in India for the past 5 years.
The factors contributing to NPAs, reasons for high NPAs and their impact on Indian banking
operations, the trend and magnitude of NPAs in Indian banks. The recovery of NPAs in both
public and private sector banks has been analysed.
The major concern for banks in India is Non-performing assets. Performance of the banks is
reflected through NPA. Larger NPA reflects credit non-payments that affect the profitability
and net worth of banks which erodes the value of the asset. Liquidity and profitability of the
banks is affected by high level of NPAs which additional affects the quality and survival of
banks. Serious problem has been faced by banking sector of India due to high and large
NPAs. Profitability of any bank is directly impact by NPAs. Profit and shareholders value is
reduced because NPAs involve necessary provision. Whole Indian economy is affected by
the problem of NPAs. NPAs are the reflection of health and trade of Indian banking sector.
vii
viii
deposits. In extension, a lot of beneficial services are also being provided by banking institutions to their customers such as issuing drafts, traveller‟s cheques, gift cheques, accepting valuables for safe custody and modern banking facilities. Banking has undergone critical changes since the process of liberalization and reform of the financial sector were set in motion in 1991. The underlying aim to bring reforms and changes in financial sector is to make the system more combative, able, beneficial and fruitful. For an economy to flourish, a firm and solid banking sector is very necessary. There is a lot of injurious impact on other sectors due to the breakdown of banking sector. Non- performing asset (NPA), now a days has become one of the leading concerns for banks in India. Sky high NPAs of banking institution advocate high possibility of a large number of credit blunders that affect the profitability and net worth of banks and also corrode the value of the asset.
A Non-performing asset can be elucidated as a credit facility in respect of which the interest and/or installment of principle has remained „past due‟ for a specific
period of time. It refers to a classification for loans on books of financial institutions that are in default or are in arrears on scheduled payments of principal or interest.
“An asset should be classified as non-performing, if the interest and/or principle amount has not been received or remained outstanding for one quarter from the day such income/ installment have fallen due.”
With a view to moving towards international best practices and to ensure greater transparency, it has been decided to adopt the „90 days‟ over dues norm for identification of NPAs from the year ending March 31, 2004. Accordingly, with effect from March 31,2004; a NPA is a loan or an advance where:
Interest and/or installment of principle remain overdue for a period of more than 90 days in respect for a term loan;
The account remains „out of order‟ in respect of an overdraft or cash credit;
The bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted;
The installment of principle or interest thereon remains overdue for two crop seasons for short duration crops;
The installment of principle or interest remains overdue for one crop season for long duration crops.
1.1 Types of Non-Performing Assets
Gross NPA: As per RBI guidelines, Gross NPA are the sum total of all loan assets thatare classified as NPAs as on Balance Sheet date. The nature of the loans made by banksis reflected by its Gross NPA. It consists of all the non- standard assets such as substandard, doubtful and loss assets. It can be calculated with the help of following ratio
Gross NPA = Gross NPAs / Gross Advances
Net NPA: All those type of NPAs in which the bank has deducted the provision regarding NPAs are called Net NPA. It can be calculated by following:
Net NPA = Gross NPAs - Provisions / Gross Advances – Provisions
Types of Assets
Standard Assets: If the borrower routinely pays his dues regularly and on time; bank considers such loan as its “Standard Asset”. All those assets for which the bank isreceiving interest as well as the principal amount of the loan regularly from the customer are referred to as Standard Assets. Such assets carry a normal risk and are not NPA in the real sense. So, no special provisions are required for Standard Assets.
Sub-standard Assets: If any loan or advance remains non-performing for a period of 12 months, it is called as Sub-standard assets.
Doubtful Assets: With effect from 31 March 2005, if any asset remains NPA for a period exceeding 12 months, it is to be classified as doubtful.
Redirecting funds from the good projects to the bad ones. As investments got stuck, it may result in it may result in unemployment. In the case of public sector banks, the bad health of banks means a bad return for a shareholder which means that the government of India gets less money as a dividend. Therefore it may impact easy deployment of money for social and infrastructure development and results in social and political cost. Investors do not get rightful returns. Balance sheet syndrome of Indian characteristics that is both the banks and the corporate sector have stressed balance sheet and causes halting of the investment-led development process. NPAs related cases add more pressure to already pending cases with the judiciary.
What are the various steps taken to tackle NPAs?
NPAs story is not new in India and there have been several steps taken by the GOI on legal, financial, policy level reforms. In the year 1991, Narsimham committee recommended many reforms to tackle NPAs. Some of them were implemented.
The Debt Recovery Tribunals (DRTs) – 1993
To decrease the time required for settling cases. They are governed by the provisions of the Recovery of Debt Due to Banks and Financial Institutions Act,
Credit Information Bureau – 2000
A good information system is required to prevent loan falling into bad hands and therefore prevention of NPAs. It helps banks by maintaining and sharing data of individual defaulters and willful defaulters.
LokAdalats – 2001
They are helpful in tackling and recovery of small loans however they are limited up to 5 lakh rupees loans only by the RBI guidelines issued in 2001. They are positive in the sense that they avoid more cases into the legal system.
Compromise Settlement – 2001
It provides a simple mechanism for recovery of NPA for the advances below Rs. 10 Crores. It covers lawsuits with courts and DRTs (Debt Recovery Tribunals) however willful default and fraud cases are excluded.
SARFAESI Act – 2002
The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 – The Act permits Banks / Financial Institutions to recover their NPAs without the involvement of the Court, through acquiring and disposing of the secured assets in NPA accounts with an outstanding amount of Rs. 1 lakh and above. The banks have to first issue a notice. Then, on the borrower‟s failure to repay, they can:
Further, this act has been amended last year to make its enforcement faster.
ARC (Asset Reconstruction Companies)
The RBI gave license to 14 new ARCs recently after the amendment of the SARFAESI Act of 2002. These companies are created to unlock value from stressed loans. Before this law came, lenders could enforce their security interests only through courts, which was a time-consuming process.
Corporate Debt Restructuring – 2005
It is for reducing the burden of the debts on the company by decreasing the rates paid and increasing the time the company has to pay the obligation back.
5:25 rule – 2014
Also known as , Flexible Structuring of Long Term Project Loans to Infrastructure and Core Industries. It was proposed to maintain the cash flow of such companies since the project timeline is long and they do not get the money back into their books for a long time, therefore, the requirement of loans at every 5 - 7 years and thus refinancing for long term projects.
Joint Lende rs Forum – 2014
It was created by the inclusion of all PSBs whose loans have become stressed. It is present so as to avoid loan to the same individual or company from different banks. It is formulated to prevent the instances where one person takes a loan from one bank to give a loan of the other bank.
Financial Year Total Amount
FY15- 16 25,000 Crore
FY16- 17 25,000 Crore
FY17- 18 10,000 Crore
FY18- 19 10,000 Crore
Total 70,000 Crore
D-DEstressing: PSBs and strengthening risk control measures and NPAs disclosure.
E-Employment: GOI has said there will be no interference from Government and Banks are encouraged to take independent decisions keeping in mind the commercial the organizational interests.
F-Framework of Accountability: New KPI(key performance indicators) which would be linked with performance and also the consideration of ESOPs for top management PSBs.
G-Governance Reforms : For Example, GyanSangam, a conclave of PSBs and financial institutions. Bank board Bureau for transparent and meritorious appointments in PSBs.
Strategic de bt restructuring (SDR) – 2015
Under this scheme banks who have given loans to a corporate borrower gets the right to convert the complete or part of their loans into equity shares in the loan
taken company. Its basic purpose is to ensure that more stake of promoters in reviving stressed accounts and providing banks with enhanced capabilities for initiating a change of ownership in appropriate cases.
Asset Quality Review – 2015
Classify stressed assets and provisioning for them so as the secure the future of the banks and further early identification of the assets and prevent them from becoming stressed by appropriate action.
Sustainable structuring of stressed assets (S4A) – 2016
It has been formulated as an optional framework for the resolution of largely stressed accounts. It involves the determination of sustainable debt level for a stressed borrower and bifurcation of the outstanding debt into sustainable debt and equity/quasi-equity instruments which are expected to provide upside to the lenders when the borrower turns around.
Insolve ncy and Bankruptcy code Act- 2016
It has been formulated to tackle the Chakravyuaha Challenge (Economic Survey) of the exit problem in India. The aim of this law is to promote entrepreneurship, availability of credit, and balance the interests of all stakeholders by consolidating and amending the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner and for maximization of value of assets of such persons and matters connecte d therewith or incidental thereto.
Pubic ARC vs. Private ARC – 2017
This debate is recently in the news which is about the idea of a Public Asset Reconstruction Companies (ARC) fully funded and administered by the government as mooted by this year‟s Economic Survey Vs. the private ARC as advocated by the deputy governor of RBI Mr. Viral Acharya. Economic survey calls it as PARA (Public Asset Rehabilitation Agency) and the recommendation is based on a similar agency being used during the East Asian crisis of 1997 which was a success.
Bad Banks – 2017
Economic survey 16-17, also talks about the formation of a bad bank which will take all the stressed loans and it will tackle it according to flexible rules and mechanism. It will ease the balance sheet of PSBs giving them the space to fund new projects and continue the funding of development projects.
1.2 List of Public Sector bank in india
Sr. no. Name 1 BANK OF BARODA 2 BANK OF INDIA 3 BANK OF MAHARASHT RA 4 CANARA BANK 5 CENT RAL BANK OF INDIA 6 INDIAN BANK 7 INDIAN OVERSEAS BANK 8 PUNJAB AND SIND BANK 9 PUNJAB NAT IONAL BANK 10 ST AT E BANK OF INDIA 11 UCO BANK 12 UNION BANK OF INDIA
1.3 List of Private Sector bank in india Sr. no. Name 1 AXIS BANK LIMIT ED 2 BANDHAN BANK LIMIT ED 3 CIT Y UNION BANK LIMIT ED 4 CSB BANK LIMIT ED 5 DCB BANK LIMIT ED 6 FEDERAL BANK LT D 7 HDFC BANK LT D. 8 ICICI BANK LIMIT ED 9 IDBI BANK LIMIT ED 10 IDFC^ FIRST BANK LIMIT ED 11 INDUSIND BANK LT D 12 JAMMU & KASHMIR BANK LT D 13 KARNAT AKA BANK LT D 14 KARUR VYSYA BANK LT D 15 KOT AK MAHINDRA BANK LT D. 16 LAKSHMI VILAS BANK LT D 17 NAINIT AL BANK LT D 18 RBL BANK LIMITED 19 SOUT H INDIAN BANK LT D 20 T AMILNAD^ MERCANT ILE BANK LT D 21 T HE DHANALAKSHMI BANK LT D 22 YES BANK LT D.
Mona (2020) in her research titled” COMPARATIVE ANALYSIS OF NON
PERFORMING ASSETS IN PUBLIC SECTOR BANK AND PRIVATE SECTOR BANK”considers data of public sector bank and private sector bank of last five years. The research paper attempts to evaluate various ratios of non performing assets on the basis of secondary data. This research paper gives conceptual idea about meaning of non performingassets; various ratios related to non performing assets and lastly, compare non performing assets in public sector bank and private sector bank.
MeenuBhandari (2019) in her study titled “A Study of Non-Performing Assets (NPAs) of Public and Private Sector Banks- Comparative Analysis” she concluded that The problem of NPAs in Indian Banking Sector affects the market conditions of the economy also. Sometimes, banks feel unwilling to lend, which may be a totally adverse condition for the growth and development of the economy. Slowdown in the domestic market as well as drop in the prices in the global markets may worsen the conditions of NPAs. Gross NPAs of the Commercial Banks has been increasing over the years. Net NPAs of Commercial Banks has also increased in the recent trend over the years.
CHAITRA K.S, VASU V (2018) in their research study titled “COMPARATIVE STUDY ON NON-PERFORMING ASSETS OF SELECTED PRIVATE AND PUBLIC SECTOR BANKS” is to analyze the comparative study of the NPA factor and returns on assets of the PSU banks and private sector for the period of five years i.e., from 2013- 14 to 2017-18. The study has considered various parameters for measuring the performance.
Dr.A.BalaMurugan, S.Balammal , M.KanthaPriya , R.Kamatchi(2018) in their research titled “A Comparative Study of NPAS in Public & Private Sector Banks in India “shows that extent of NPA is comparatively very high in public sector banks as compared to private banks. Although various steps have been taken by government to reduce the NPAs but still a lot needs to be done to curb this problem. The extent of NPAs has comparatively higher in Public sector banks. To improve the efficiency and profitability, the NPAs have to be scheduled, various steps have been taken by governments to reduce the NPAs. The governments should also make more provisions for faster settlements of
