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Study of NPA and their impact on public sector banks

CAPSTONE REPORT

Submitted to Lovely Professional University

In partial fulfillment of the requirements for the award of degree of

MASTER OF BUSINESS ADMINISTRATION

Submitted by: Supervisor :

Group No Q24

Anil Aswal RQ2005B64 (11013856) Parmeet Mam

Atif Ashfaq RQ2005B67 (11013908)

Manpreet kaur RQ1703A18 (7440070116)

Vikalp Saxena RQ2005B63(11013514)

DEPARTMENT OF MANAGEMENT

LOVELY PROFESSIONAL UNIVERSITY

PHAGWARA

(2012)

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TABLE OF CONTENTS

INTRODUCTION PAGE No.

Introduction of Indian Banking Sector 3-7

Introduction of Public Sector Bank 8

CHALLENGES FOR PUBLIC SECTOR BANKS 9-10

NON PERFORMING ASSETS 11-14

LITERATURE REVIEW 15-20

OBECTIVE OF STUDY 21-21

PUBLIC SECTOR BANK-TOTAL ASSETS,GROSS NPA,NET NPA 22

PUBLIC SECTOR BANK-PROFIT 23-24

SECTOR WISE CLASSIFICATION OF NPA 25-26

IMPACT OF NPA ON PUBLIC SECTOR BANKS 27-28

RATIO ANALYSIS 29-41

REFERENCES 42

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INTRODUCTION

BANKING IN INDIA

A bank is a financial institution that provides banking and other financial services. By the term bank is

generally understood an institution that holds a Banking Licenses. Banking licenses are granted by financial

supervision authorities and provide rights to conduct the most fundamental banking services such as

accepting deposits and making assets. There are also financial institutions that provide certain banking

services without meeting the legal definition of a bank, a so-called Non-bank. Banks are a subset of the

financial services industry.

The word bank is derived from the Italian banca, which is derived from German and means bench. The

terms bankrupt and "broke" are similarly derived from banca rotta, which refers to an out of business bank,

having its bench physically broken. Moneylenders in Northern Italy originally did business in open areas, or

big open rooms, with each lender working from his own bench or table.

Typically, a bank generates profits from transaction fees on financial services or the interest spread on

resources it holds in trust for clients while paying them interest on the asset. Development of banking

industry in India followed below stated steps.

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.

Banking in India has an early origin where 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, was the turn of the agency houses to carry on the banking business. The General Bank of

India was first Joint Stock Bank to be established in the year 1786. The others which followed were

the Bank Hindustan and the Bengal Bank.

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

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also known as Presidency banks were amalgamated in 1920 and a new bank, the Imperial Bank of

India was established in 1921. With the passing of the State Bank of India Act in 1955 the

undertaking of the Imperial Bank of India was taken by the newly constituted State Bank of India.

The Reserve Bank of India which is the Central Bank was created in 1935 by passing Reserve Bank

of India Act, 1934 which was followed up with the Banking Regulations in 1949. These acts

bestowed Reserve Bank of India (RBI) with wide ranging powers for licensing, supervision and

control of banks. Considering the proliferation of weak banks, RBI compulsorily merged many of

them with stronger banks in 1969.

The three decades after nationalization saw a phenomenal expansion in the geographical coverage

and financial spread of the banking system in the country. As certain rigidities and weaknesses were

found to have developed in the system, during the late eighties the Government of India felt that

these had to be addressed to enable the financial system to play its role in ushering in a more

efficient and competitive economy. Accordingly, a high-level committee was set up on 14 August

1991 to examine all aspects relating to the structure, organization, functions and procedures of the

financial system. Based on the recommendations of the Committee (Chairman: Shri M.

Narasimham), a comprehensive reform of the banking system was introduced in 1992-93. The

objective of the reform measures was to ensure that the balance sheets of banks reflected their actual

financial health. One of the important measures related to income recognition, asset classification

and provisioning by banks, on the basis of objective criteria was laid down by the Reserve Bank. The

introduction of capital adequacy norms in line with international standards has been another

important measure of the reforms process.

1. Comprises balance of expired assets, compensation and other bonds such as National Rural

Development Bonds and Capital Investment Bonds. Annuity certificates are excluded.

2. These represent mainly non- negotiable non- interest bearing securities issued to International

Financial Institutions like International Monetary Fund, International Bank for Reconstruction and

Development and Asian Development Bank.

3. At book value.

4. Comprises accruals under Small Savings Scheme, Provident Funds, Special Deposits of Non-

Government

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In the post-nationalization era, no new private sector banks were allowed to be set up. However, in

1993, in recognition of the need to introduce greater competition which could lead to higher

productivity and efficiency of the banking system, new private sector banks were allowed to be set

up in the Indian banking system. These new banks had to satisfy among others, the following

minimum requirements:

(i) It should be registered as a public limited company;

(ii) The minimum paid-up capital should be Rs 100 crore;

(iii) The shares should be listed on the stock exchange;

(iv) The headquarters of the bank should be preferably located in a centre which does not have

the headquarters of any other bank; and

(v) The bank will be subject to prudential norms in respect of banking operations, accounting and

other policies as laid down by the RBI. It will have to achieve capital adequacy of eight per

cent from the very beginning.

A high level Committee, under the Chairmanship of Shri M. Narasimham, was constituted by the

Government of India in December 1997 to review the record of implementation of financial system

reforms recommended by the CFS in 1991 and chart the reforms necessary in the years ahead to

make the banking system stronger and better equipped to compete effectively in international

economic environment. The Committee has submitted its report to the Government in April 1998.

Some of the recommendations of the Committee, on prudential accounting norms, particularly in the

areas of Capital Adequacy Ratio, Classification of Government guaranteed advances, provisioning

requirements on standard advances and more disclosures in the Balance Sheets of banks have been

accepted and implemented. The other recommendations are under consideration.

The banking industry in India is in a midst of transformation, thanks to the economic liberalization of

the country, which has changed business environment in the country. During the pre-liberalization

period, the industry was merely focusing on deposit mobilization and branch expansion. But with

liberalization, it found many of its advances under the non-performing assets (NPA) list. More

importantly, the sector has become very competitive with the entry of many foreign and private

sector banks. The face of banking is changing rapidly. There is no doubt that banking sector reforms

have improved the profitability, productivity and efficiency of banks, but in the days ahead banks

will have to prepare themselves to face new challenges.

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CLASSIFICATION OF SCHEDULED BANKING STRUCTURE IN INDIA

The scheduled banks are divided into scheduled commercial banks and scheduled co operative

banks. Further scheduled commercial banks divided into the Public Sector Banks, private sector banks,

foreign banks, and regional rural banks. Whereas scheduled co-operative banks are classified into scheduled

urban co operative and scheduled state co- operative.RBI has further classified public sector banks into

nationalized banks, state bank of India and its subsidiaries. And private banks have been classified into old

and new private sector banks. As far as the number is concerned, total public sector banks are 27, private

sector banks are 30, foreign banks are 36, and regional rural banks are 196. Thus in scheduled commercial

bans, the regional rural banks are on the top number.In the scheduled co-operative banks, there are 57

scheduled cooperatives and 16 scheduled co-operative banks. Today the overall commercial banking system

in India may be distinguished into:

1. Public Sector Banks

2. private Sector Banks

3. Co-operative Sector Banks

4. Development Banks

PUBLIC SECTOR BANKS

a. State Bank of India and its associate banks called the State Bank group

b. 20 nationalised banks

c. Regional Rural Banks mainly sponsored by Public Sector Banks

PRIVATE SECTOR BANKS

a. Old generation private banks

b. New generation private banks

c. Foreign banks in India

d. Scheduled Co-operative Banks

e. Non-scheduled Banks

CO-OPERATIVE SECTOR

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The co-operative banking sector has been developed in the country to the supplement the village money

lender. The co-operatiev banking sector in India is divided into 4 components

1. State Co-operative Banks

2. Central Co-operative Banks

3. Primary Agriculture Credit Societies

4. Land Development Banks

5. Urban Co-operative Banks

6. Primary Agricultural Development Banks

7. Primary Land Development Banks

8. State Land Development Banks

DEVELOPMENT BANKS

1. Industrial Finance Corporation of India (IFCI)

2. Industrial Development Bank of India (IDBI)

3. Industrial Credit and Investment Corporation of India (ICICI)

4. Industrial Investment Bank of India (IIBI)

5. Small Industries Development Bank of India (SIDBI)

6. SCICI Ltd.

7. National Bank for Agriculture and Rural Development (NABARD)

8. Export Import Bank of India

9. National Housing Bank

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PUBLIC SECTOR BANKS

Before the independence, the banking system in India was primarily

associated with urban sector. After independence, the banks had to spread out into rural and unbanked areas

and make credit available to the people of those areas. In 1969 the government nationalized 14 major

commercial banks. Still the wide disparities continued. To reduce the disparities the government

nationalized 6 more commercial banks in 1980 government came to own 28 banks including SBI and its 7

subsidiaries. Today, we are having a fairly well developed banking system with different classes of banks-

public sector banks, foreign banks, and private sector banks-both old and new generation.

In July 1993, New Bank of India was merged with Punjab National Bank. Now, there are 25 banks in the

public sector viz. State Bank of India and its 5 associates, 19 commercial banks exclusive of Regional Rural.

In terms of sheer geographical spread, the public sector system is the largest. The statistics are as follows: a

network of 64000,branches-one branch for every 14000 Indian with over 64 crores customers. This labour

intensive network has built-in cost, which makes the public sector banks inherently uncompetitive.

Reduction of branches to achieve cost saving has not received a munch thrust as it should. Public sector

banks are characterized by mammoth branch network, huge work force, relatively lesser mechanization, and

huge volume but of less value business transactions, social objectives and their own legacy system and

procedures. “Improving profitability in general requires efforts in several directions, i.e. cutting in cost,

improving productivity, better recovery of loan and to reduce high level of NPAs”. The public sector banks

have to build up the cost-benefit culture in their operations. When there is a thin margin in banking

operation, the public sector banks in India have to increase the turnover. Previously, Indian banks were

relying on high credit deposit ratio. Now, the Indian banks have to depend on the volume of high business

turnover. The returns on assets have to be improved. Further, the PSBs in Indian have to compare them with

the highly profitable bank with regards to operating expenses. They have to ensure that each every account

is profitable and product should be such, while generates more profit.

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CHALLENGES FOR THE PUBLIC SECTOR

Indian banks functionally diverse and geographically widespread have

played a crucial role in the socio-economic progress of the country after independence. Growth of large

number of medium and big industries and entrepreneurs in diverse fields were the direct results of the

expansion of activities of banks. The rapid growth, forever lead to strains in the operational efficiency of the

banks and the accumulation of non-performing assets (NPAs) in their assets portfolio. The uncomfortably

high level of NPAs of banks however is a cause for worry and it should be brought down to international

acceptable levels for creating a vibrant and competitive financial system. NPAs are serious strains on the

profitability of the banks as they cannot book income on such accounts and their funding cost provision

requirement is a charge on their profit. Although S & P cited as a reasons for mounting of NPAs priority

sector lending, outdated legal system which notonly encourages the incidence of NPAs but also prolongs

their existence by placing a premium on default and delay in finalization of rehabilitation packages by the

Board for Industrial and Financial Reconstruction are some of the major causes for the rising of NPAs. The

following deficiencies were noticed in the managing Credit Risk:

The absence of written policies.

The absence of portfolio concentration limits.

Excessive centralization or decentralization of lending authorities.

Cursory financial analysis of borrower.

Infrequent customer contact.

Inadequate checks and balances in credit process

The absence of loan supervision

A failure to improve collateral position as a credit deteriorate

Excessive overdraft lending.

Incomplete credit files

The absence of the assets classification and loan-loss provisioning standards

A failure to control and audit the credit process effectively.

There are 26 banks in the public sector viz. State Bank of India and its 6 associates,20 commercial banks

exclusive of Regional Rural. Following are the 26 public sector banks.

1. Allahabad Bank

2. Andhra Bank

3. Bank of Baroda

4. Bank of India

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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. Punjab National Bank

13. Punjab and Sind Bank

14. Syndicate Bank

15. UCO Bank

16. Union Bank of India (UBI)

17.Vijaya Bank

18. Oriental Bank of commerece

19. IDBI Bank

State Bank of India

State Bank of India & its associates.

1) State Bank of Hyderabad

2) State Bank of India

3) State Bank of Mysore

4) State Bank of Travancore

Deposits

Total deposits mobilized by the Public Sector Banks as at the end March 2011 stood at Rs.

38,72,483 crore showing a growth of 15.77% which is higher than growth rate of end March 2010.

Investment

During 2010-2011, investment was Rs. 1078103 crore in india by public sector bank.

Credit

The rate of growth in the total loan disbursement by the banking sector was

lower during 2010-11 due largely to lower economic activity. The total assets and advances position as at

end March 2011 stood at Rs. 2920408 crore of the public sector bank.

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NON-PERFORMING ASSETS

The world is going faster in terms of services and physical products.

However it has been researched that physical products are available because of the service industries.In the

nation economy also service industry plays vital role in the boosting up of theeconomy. The nations like

U.S, U.K, and Japan have service industries more than 55%.The banking sector is one of appreciated service

industries. The banking sector plays larger role in channelising money from one end to other end. It helps

almost every person in utilizing the money at their best. The banking sector accepts the deposits of the

people and provides fruitful return to people on the invested money. But for providing the better returns plus

principal amounts to the clients; it becomes important for the banks to earn the main source of income for

banks are the interest that they earn on the loans that have been disbursed to general person, businessman, or

any industry for its development.

Thus, we may find the input-output system in the banking sector. Banks first, accepts the deposits from the

people and secondly they lend this money to people who are in the need of it. By the way of channelising

money from one end to another end, Banks earn their profits.However, Indian banking sector has recently

faced the serious problem of Non Performing Assets. This problem has been emerged largely in Indian

banking sector since three decade. Due to this problem many Public Sector Banks have been adversely

affected to their performance and operations. In simple words Non Performing Assets problem is one where

banks are not able to recollect their landed money from the clients or clients have been in such a condition

that they are not in the position to provide the borrowed money to the banks. The problem of NPAs is

danger to the banks because it destroys the healthy financial conditions of the them. The trust of the people

would not be anymore if the banks have higher NPAs. So. The problem of NPAs must be tackled out in such

a way that would not destroy the operational, financial conditions and would not affect the image of the

banks. recently, RBI has taken number steps to reduce NPAs of the Indian banks. And it is also found that

the many banks have shown positive figures in reducing NPAs as compared to the past years.

MEANING OF NPAS

An asset is classified as non-performing asset (NPAs) if the borrower does

not pay dues in the form of principal and interest for a period of 180 days. However with effect from March

2004, default status would be given to a borrower if dues were not paid for 90 days. If any advance or credit

facilities granted by bank to a borrower become non-performing, then the bank will have to treat all the

advances/credit facilities granted to that borrower as non-performing without having any regard to the fact

that there may still exist certain advances / credit facilities having performing status.

Action for enforcement of security interest can be initiated only if the

secured asset is classified as Non Performing Asset. Non Performing Asset means an asset or account of

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borrower, which has been classified by a bank or financial institution as substandard, doubtful or loss asset,

in accordance with the directions or guidelines relating to asset classification issued by RBI.

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. Due to the improvement in the payment and settlement systems, recovery

climate,upgradation of technology in the banking system, etc., it was decided to dispense with 'past

due' concept, with effect from March 31, 2001.Accordingly, as from that date, a Non performing

asset (NPA) shell be anadvance where Interest and /or installment of principal remain overdue for a

period of more than 180 days in respect of a Term Loan

The account remains 'out of order' for a period of more than 180 days, in respect of an overdraft/

cash Credit (OD/CC)

The bill remains overdue for a period of more than 180 days in the case of bills purchased and

discounted

Interest and/ or installment of principal remains overdue for two harvest seasons but for a period not

exceeding two half years in the case of an advance granted for agricultural purpose

Any amount to be received remains overdue for a period of more than 180 days in respect of other

accounts.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 NPAs,

form the year ending March 31, 2004. Accordingly, with effect form March 31, 2004, a non-

performing asset (NPA) shell be a loan or an advance where :-

Interest and /or installment of principal remain overdue for a period of more than 90 days in respect

of a Term Loan

The account remains 'out of order' for a period of more than 90 days, in respect of an overdraft/ cash

Credit (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 purpose

Any amount to be received remains overdue for a period of more than 90 days in respect of other

accounts.

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ASSET CLASSIFICATION

Categories of NPAs

Standard Assets:

Standard assets are the ones in which the bank is receiving interest as well as the principal amount of the

loan regularly from the customer. Here it is also very important that in this case the arrears of interest and

the principal amount of loan do not exceed 90 days at the end of financial year. If asset fails to be in

category of standard asset that is amount due more than 90 days then it is NPA and NPAs are further need to

classify in sub categories.

Banks are required to classify non-performing assets further into the following three categories based on the

period for which the asset has remained non-performing and the reliability of the dues:

( 1 ) Sub-standard Assets

( 2 ) Doubtful Assets

( 3 ) Loss Assets

( 1 ) Sub-standard Assets

With effect from 31 March 2005, a substandard asset would be one, which has

remained NPA for a period less than or equal to 12 month. The following features are exhibited by

substandard assets: the current net worth of the borrowers / guarantor or the current market value of the

security charged is not enough to ensure recovery of the dues to the banks in full; and the asset has well-

defined credit weaknesses that jeopardise the liquidation of the debt and are characterised by the distinct

possibility that the banks will sustain some loss, if deficiencies are not corrected.

( 2 ) Doubtful Assets

A loan classified as doubtful has all the weaknesses inherent in assets that were

classified as sub-standard, with the added characteristic that the weaknesses make collection or liquidation

in full, – on the basis of currently known facts, conditions and values – highly questionable and improbable.

With effect from March 31, 2005, an asset would be classified as doubtful if it remained in the sub-standard

category for 12 months.

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( 3 ) Loss Assets

A loss asset is one which considered uncollectible and of such little

value that its continuance as a bankable asset is not warranted- although there may be some salvage or

recovery value. Also, these assets would have been identified as „loss assets‟ by the bank or internal or

external auditors or the RBI inspection but the amount would not have been written-off wholly.

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REVIEW OF LITERATURE

Goven (1993) in his article, “NPAs on account of priority sector lending”, it was pointed out that there may

be only a marginal difference in the NPAs of banks‟ lending to priority sector and the bank‟s lending to

private corporate sector. Against this background, the study suggests that given the deficiencies in these

areas, it is imperative that banks need to be guided by fairness based on economic and financial decisions

rather than system of conventions, if reform has to serve the meaningful purpose. Experience shows that

policies of liberalization, deregulation and enabling environment of comfortable liquidity at a reasonable

price do not automatically translate themselves into enhanced credit flow. Although public sector banks

have recorded improvements in profitability, efficiency (in terms of intermediation costs) and asset quality

in the 1990s, they continue to have higher interest rate spreads but at the same time earn lower rates of

return, reflecting higher operating costs.

Pati (1999) studied the causes and consequences of NPA in Indian banks & suggested the cure of large

NPAs. It was revealed that the main cause of NPA is non linkage of lending with productive investment and

recovery with product sale. The study examined that large NPA hinders the profitability and viability of the

banks. It was suggested that improved recovery mechanism and credit management is the way out to

minimize NPA.

Dong (2002) Analyzed that the nature of NPAs in the Indian Banking system and discussed the key design

features that would be important for the assets reconstruction company to resolve NPAs problem. The

emphasis was put on recent regional and cross country experience in dealing with impaired assets during

period of financial crises.

Prashant k reddy (2002) in this article he talks about the financial sector reform in india which has

progressed rapidly on aspects like interest rate deregulation ,reduction in reserve requirements, barriers to

entry, prudential norms & risk based supervision but the progress on the structural-institutional aspects has

been much slower and is a cause for concern. It tells about what changes are required to tackle the NPA

problem. This paper also deals with the experiences of other Asian countries in handling of NPAs. It also

suggests mechanisms to handle the problem by drawing on experiences from other countries

desai (2002) in his book titled, "Managing Non-Performing Assets in Banks," highlighted that banks are

concerned with their heavy NPA portfolio which was impairing their profitability and are taking all possible

steps to contain the same. Banks have achieved a reasonable degree of success to bring down their existing

NPAs but due to heavy slippage of standard accounts to NPA category the overall position continued to

deteriorate. The main reasons responsible for such a situation include - slow economic and industrial

growth, slump in capital market, financial indiscipline, Willful defaults by the borrowers, overburdened and

slow judiciary, competition faced by local industries from the multi-nationals, lack of support to the

borrowers from the banks at the time of the need, etc. In this book, the author has made an effort to deal with

the practical aspects of the problem of management of NPAs right from identification stage till recovery of

the dues including other aspects connected with the subject like asset classification, assessment of provision,

pre-sanction appraisal and post-sanction appraisal and post sanction supervision, monitoring system for

existing and likely NPAs, capital adequacy, reduction of NPAs, rehabilitation of sick nonperforming units

etc.

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Muniappan (2002) examined the impact of NPA on banks profits and lending ability. He analysed the

measures initiated by reserve bank and Government of India for reduction of NPA and suggested that NPA

can be avoided at the initial stage of credit consideration by putting in place rigorous and appropriate credit

appraisal mechanism.

Rajput (2003) in his thesis titled, "Banking Sector Reforms in India - A study of Post-Liberalization Period",

highlighted that decade of nineties in last century brought revolution in Indian banking sector. Banks were

made free from the clutches of hefty regulations and allowed to decide their own fate. Author suggested that

Indian banks especially public sector banks will have to learn to live up with competitive environment. They

must make persistent efforts to improve their profitability. On the revenue side, they should increase non-

interest income by diversifying their operation into Para banking activities on the lines of new private banks.

On the expenditure side, they must bring efficiency in their operations to minimize cost and strive hard to

control the booming NPAs.

Kumar (2003) in his paper titled, "The Securitization and Reconstruction of Financial Assets and

Enforcement of Security Interest Act,2002", discussed in detail the need, process, summary, positive as well

as negative aspects of the Act. He analyzed that this Act empowered banks and financial institutions to

directly enforce the security interest which was pledged to them at the time of sanctioning the loan without

going through the judicial process of DRT or Civil Courts.

Ranjan & Dhal (2003) In this study they do the analysis of commercial banks' nonperforming assets(NPAs)

in the Indian context. The empirical analysis evaluates as to how banks‟ non-performing assets are

influenced by three major sets of economic and financial factors, i.e., terms of credit, bank size induced risk

preferences and macroeconomic shocks. The empirical results from panel regression models suggest that

terms of credit variables have significant effect on the banks' non-performing assets in the presence of bank

size induced risk preferences and macroeconomic shocks. Moreover, alternative measures of bank size could

give rise to differential impact on bank's non-performing assets. In regard to terms of credit variables,

changes in the cost of credit in terms of expectation of higher interest rate induce rise in NPAs. On the other

hand, factors like horizon of maturity of credit, better credit culture, favourable macroeconomic and

business conditions lead to lowering of NPAs. Business cycle may have differential implications adducing

to differential response of borrowers and lenders.

Misra (2003) in his article, "Managing Non-Performing Assets: A Professional Approach", highlighted that

the profitability of the financial institutions largely depended upon the level of income generated through

optimum use of the assets after paying the cost of fund for acquiring them and other administrative costs

involved therein. Redefined objective of managing NPAs through profit maximization approach and risk

management approach were suggested. The author further concluded that the high rise in gross and net

NPAs of the banking sector in the recent past was at an exponential rate giving an indication that present

ongoing recession was taking a heavy toll on corporate credit discipline.

Mukherjee (2003) made an attempt to draw some policy conclusions from the international experiences

regarding the resolution of the problem of old bad debts. International experiences suggest that different

countries adopted mainly two types of strategies via the formation of Asset Management Companies and the

strategy of decentralized restructuring.

Khan and Singh (2005) in their Report on "Effectiveness of DRTs in Recovery of Bank Dues”, have

evaluated the performance of DRTs in recovery of bank dues during the years 1996 to 2004. They have

highlighted major defects in DRT system and also gave recommendations to overcome them. They have

concluded that the DRTs were effective in recovery of banks' dues to a certain extent and would become

more effective, provided the given suggestions were implemented in letter and spirit.

Saggar (2005) in her research book titled, " commercial Banks in India", stated that it has been found over

the years that the performance of banking sector has been a mixed one i.e. strong in widening the business

coverage but weak in terms of sustainability and viability. Overtime, the viability particularly of a number of

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public sector banks has become a matter of great concern. According to author, profitability of banks is

influenced by a combination of factors such as quality of asset-liability management, productivity levels,

operating costs, organisational culture and most critical issue in present context, i.e., the non-performing

assets (NPAs). She concluded that the public sector banks should move from deposit orientation to profit

orientation. Profit plans should be developed to help them in recasting their cost estimates for their activities.

Khasnobis (2005) in his article, “NPAs Emerging Challenges in India” studied that the Indian banking sector

has played a commendable role in fuelling and sustaining growth in the economy. In the recent past a large

part of the banking sector‟s growth has been on the back of financing consumption, as reflected in the

growth of retail banking. While the progress on this front is likely to continue, sustaining this growth in the

coming years may require focus on the supply side – capacity building. A growth driver in this phase would

involve financing the emerging Small & Medium Enterprises (SMEs) sector of the economy. As such, banks

would have to gear up for the challenges of managing growth and consequent risks in the SME sector

financing. Addressing this issue and putting in place a suitable risk mitigation mechanism is going to be a

fairly daunting challenge. One way of ensuring focus would be to free up capital – both financial and human

– and make them available for sustaining the growth in assets and profitability. Farming out the banks‟ Non-

Performing Assets (NPAs) portfolio to asset recovery

companies, which specialize in this segment of the financial sector, could be an option worth evaluating.

Kumar (2005) in his article, “Non-Performing Assets in Indian Banks” studied that the Indian banking sector

faced a serious problem of NPAs. The extent of NPAs has comparatively higher in public sectors banks. To

improve the efficiency and profitability, the NPAs have to be scheduled. Various steps have been taken by

government to reduce the NPAs. It is highly impossible to have zero percentage NPAs. But at least Indian

banks can try competing with foreign banks to maintain international standard.

Bose (2005) in his research paper, " SERFAESI Act: An Effective Recovery Tool", elaborated while there

have been several schemes in the past to facilitate the recovery from NPAs, the success of such efforts in

terms of NPAs reduction has been far from satisfactory. SERFAESI Act, it was hoped, would greatly help

banks in their efforts to reduce and recover money from NPAs. Nonetheless, the recent developments have

also brought out the limitations of the Act, thereby creating apprehensions amongst banks and financial

institutions. Notwithstanding this, to take full advantage of the Act, the cool causes of NPAs, which were

evident in the system, may have to be addressed first. The author has made an attempt to provide a glimpse

of the SERFAESI Act against this backdrop.

Raul(2005) discussed about the securitization act 2002 that facilitated that the investors to deploy the funds

in non-performing asset portfolio of banks and financial institution.

Chugh (2005),in his research book titled, " Indian baking today-Impact of Reforms", has attempted to

investigate whether new private sector banks were serving properly to different segments of the economic

sectors of India specially to economically weaker sector of the society or not and were the employees of

these banks satisfied. Some other important parameters such as assets size, level of NPAs, interest and other

incomes etc. were selected to make comparison between new private sector banks and public sector banks.

Impact of economic reforms on banking sector has also been examined in the study. He concluded that

public sector banks were coming up fastly to meet the challenges of open competition in financial markets in

India. They were adopting latest banking technologies day by day and providing quality services to their

respective customers at lower cost.

Harpreet (2006) in her thesis titled “Credit management and problem of NPAs in Public Sector Banks”

highlighted the problem of non-performing assets in public sector banks. Various developments in the

banking sector in India have been analyzed by studying the growth of banking sector in Pre-and Post –

Independence era. The study has covered the prudential norms given by RBI and also analyzed the NPA

management policies of public sector banks. Viewpoints of the managers regarding problem of NPAs have

also been studied by selecting 120 managers from various branches of public sector banks in Punjab.

18 | P a g e

Perceptions of borrowers contributing to NPAs have also been studied by selecting 100 defaulters from

public sector banks in Punjab. Author suggested that for effective handling of NPAs, there is an urgent need

for creating proper awareness about the adverse impact of NPAs on profitability amongst bank staff,

particularly the field functionaries. Bankers should have frequent interactions and meeting with the

borrowers for creating better understanding and mutual trust.

B Krishna Reddy & P Premchand Babu & V Mallikarjuna & P Viswanath(2006)is trying to show the

investigation trends in non performing assets,sectoral composition of NPAs, asset quality diagnosis and the

scenario of NPAs at the bank level.And they are also focus on scenario when the scnerio is change the

operations of Public Sector Banks (PSBs), Non-performing Assets (NPAs) have been the most vexing

problem faced by PSB.

Michael(2006) examined how NPA in the loan portfolio affects the operational efficiency of the central

cooperative banks. The study aimed to check the factors of non-performing assets of the banks. The study

suggested that prompt, preventive and curative measures can curb the menace of NPA's.

Kumar (2006) in his research book titled, "Banking Sector Efficiency in Globalize Economy," highlighted

that the performance of the banks both in the public and private sectors has become more market driven with

growing emphasis on better performance. Author has explored the broad structure of banking system in

India, analyzed the overall efficiency of the system in terms of financial parameters into two components:

technical efficiency and allocation efficiency. He concluded that the much-publicized fact that public sector

banks are inefficient is based on a piecemeal analysis in the form of simple, static, partial and isolated ratios

having some hidden and often misconceived assumptions about the structure. The study concluded that there

was an urgent need of the time to go in for this kind of system wide analysis to explore the intricacies of the

complex system.

Murali and Krishna (2006) in their paper, "Ensuring Qualitative Credit Growth through Effective

Monitoring of Advances", observed that there has been a spirit in the lending activity of banks, in the recent

past. This is due to two factors, viz. availability of huge surplus funds with the banks and the losses suffered

by the banks in investment and treasury activities. While credit growth is needed for survival, it is

imperative to ensure that the credit growth does not result in nonperforming advances later. For this banks

have to resort to effective pre-disbursement as well as post-disbursement monitoring. The authors concluded

that negligence in monitoring a loan was less excusable than an error at the appraisal stage.

Bhatia (2007) 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.

Karunakar (2008) in his article, “Are non - Performing Assets Gloomy or Greedy from Indian Perspective?”

has discussed that the economic reforms initiated by the then finance minister and present prime minister of

India Dr. Manmohan Singh would have been remained incomplete without the overhaul of Indian banking

sector. The problem of losses and lower profitability of Non-Performing Assets (NPAs) and liability

mismatch in banks and financial sector depend on how various risks are managed in their business. An

attempt is made in the paper that what are NPAs? The factors contributing to NPAs, the magnitude of NPAs,

reasons for high NPAs and their impact on Indian banking operations. Besides capital to risk weightage

assets ratio of public sector banks, management of credit risk and measures to control the menace of NPAs

are also discussed. The lasting solution to the problem of NPAs can be achieved only with proper credit

19 | P a g e

assessment and risk management mechanism. It is better to avoid NPAs at the market stage of credit

consolidation by putting in place of rigorous and

appropriate credit appraisal mechanisms.

Mohit Kakkar (2008 -2010)explained that the non-performing assets in banks has assumed great importance.

While gross NPA reflects the quality of the assets made by banks, net NPA shows the actual burden of

banks. Now it is increasingly evident that the major defaulters are the big borrowers coming from the non-

priority sector. The banks and financial institutions have to take the initiative to reduce NPAs. Public sector

banks figure prominently in the debate not only because they dominate the banking industries, but also since

they have much larger NPAs compared with the private sector banks. This raises a concern in the industry

and academia because it is generally felt that NPAs reduce the profitability of banks, weaken its financial

health and erode its solvency.

Goyal kanika(2010)talk about the public sector banks and their importance in banking sector because public

sector banks covers the 82 % of share in the total deposit. In this she talks about that many provision has to

be taken to improve the efficiency of banks and trim down NPA to improve the financial health of the banks.

The study 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.

Saluja(2010) compared the performance of public and private sector banks and in foreign banks in India

with special reference to their non-performing assets. The objective of the study to evaluate NPA‟s i.e.

Gross and Net in different banks. The study made a comparative analysis of NPA‟s of public, private and

foreign banks. The study concludes that there is a huge difference in NPA‟s of public, private and foreign

banks.

Mallick, Soumitra K(Apr 2010) talks about the Non-performing assets (NPAs) are an important measure of

the success of these businesses, as well as of their levels of discretion in carrying out their commercial

activities conditional on their role in developing India's entrepreneurship outside the stock markets. In this

article we analyze certain properties of NPAs in Indian Banks over the 1990s . They are provided three

conclusions for emerging India's banking sector. First, NPAs (as a ratio of loans and advances) are

significantly sticky over time. Second, larger NPAs are associated with larger advances and vice-versa.

Third, NPAs do not seem to have spiraled out of control over the 1990s. A simple co-integration test is

carried out and a set of dynamic graphs, using notions of „fibration, is presented to support the results.

Arpita (2010) “are NPA gloomy from Indian perspective” explained that In the global economy prevailing

today, the vulnerability of Indian businesses has increased. A culture change is crept in where repayment of

bank loans is no longer assured. A constant follow up action and vigil are to be exercised by the operating

staff. Diversion of funds and willful default has become more common. The challenges before the banks in

India today are the raising NPAs in the retail sector, propelled by high consumerism and lowering of moral

standards. The NPAs have deliterious impact in the interest income on the bank, bank profitability because

of the providing of the doubtful debts, return on investment of course. NPAs also disturb the Capital

Adequacy Ratio (CAV) and economic value addition (EVR) of the banks. It is due to above factors, the

public sector banks are faced with bulging NPAs which results in lower income and higher provisioning for

doubtful debts and it will make a dent in their profit margin

Radhika(2011) studied the trends in NPA‟s of Indian banks and makes a comparison of public sector banks,

old private sector banks, new private sector banks and foreign banks. She made an attempt to establish

20 | P a g e

relationship between net profit and NPA‟s and total advances. The impact of NPA‟s on net profit and impact

of total advances on NPA‟s was also examined.

Kajal & Monika (2011)They have used statistical tools for projection of trend and to make a comparative

analysis of services of Public sector Banks and Private Sector banks. Increased competition, new

information technologies and thereby declining processing costs, the erosion of product and geographic

boundaries, and less restrictive governmental regulations have all played a major role for Public Sector

Banks in India to forcefully compete with Private and Foreign Banks. this paper an attempt to analyze how

efficiently Public sector banks have been managing NPA.

Yadav(2011) This paper deals with the concept of non-performing assets, its magnitude and impact. One

fourth credit of total advances was in the form of doubtful asset in the initial year of the nineties and has an

adverse impact on profitability of public banks at aggregate or sectoral level indicating high degree of

riskiness in credit portfolio and raising question mark on the credit appraisal. The profitability of all public

sector banks affected at very large extent when non-performing assets (NPAs) work with other banking

strategic variables and also affect productivity and efficiency.

Shantanu In this they mentioned that the banking industry has undergone a sea change after the first phase of

economic liberalization in 1991 and hence credit management. While the primary function of banks is to

lend funds as loans to various sectors such as agriculture, industry, personal loans, housing loans etc., in

recent times the banks have become very cautious in extending loans. The reason being mounting non-

performing assets (NPAs). An NPA is defined as a loan asset, which has ceased to generate any income for a

bank whether in the form of interest or principal repayment. As per the prudential norms suggested by

theReserve Bank of India (RBI), a bank cannot book interest on an NPA on accrual basis. In other

words,such interests can be booked only when it has been actually received. Therefore, this has become

what is called as a „critical performance area‟ of the banking sector as the level of NPAs affects the

profitability of a bank

21 | P a g e

OBJECTIVE OF STUDY

To understand the impacts of NPAs on the operations of the Public Sector Banks.

To evaluate the comparative ratios of the Public Sector Banks with concerned to the NPAs.

SCOPE OF STUDY

To study what kind of role NPAs are playing upon the operations of the Bank

Judge the performance and financial position of the company when NPA is considered.

To know the variables available to control NPAs

RESEARCH DESIGN

Descriptive Research

As Descriptive study is conducted with an objective to gain familiarity with the phenomenon or to achieve

new insight into it, this study aims to find the impact of NPA on public sector banks

SAMPLING DESIGN

• Universe

In this study the universe is finite and will take into the consideration related news and events that have

happened in last few year.

• Sampling Unit: -

As this study revolves around NPA impact on public sector bank. So the sampling unit is confined to only

the Banking.

SAMPLING TECHNIQUE: -

Convenient Sampling: Study conducted on the basis of availability of the Data and requirement of the

project. Study requires the events that have NPA impact on Public sector banks.

Data collection Method

Secondary data: For the secondary data various literatures, books, journals, magazines, web links are used.

As there are not possibilities of collecting data personally so no questionnaire is made.

22 | P a g e

PUBLIC SECTOR BANK-TOTAL ASSETS,GROSS NPA,NET NPA

Total assets :

Total Assets of the Public Sector Banks increased to Rs. 51,97,789.08 crore as on March 2011

from Rs. 44,05,529.21crore of the previous year, showing the growth rate of 17.98% as against the growth

rate of 18.01% recorded during the 2009-2010. 20 Nationalised bank registered higher growth than the rate

of growth recorded by the Public Sector Banks(State bank) as a group. During the previous year (2009-

2010), 20 Nationalised Banks registered higher growth rate than the growth recorded by this group.

Non Performing Assets :

Both gross NPA & net NPA at the end of march 2011 were higher then the previous year.The

gross NPA of pubic sector banks increased to Rs. 71,047.41 crore at the march 2011 from Rs. 56,807.98

crore at the end march 2010.Similarly the net NPA is increase from Rs. 36,102.07crore in march 2011 as

compare to the previous year i.e. Rs. 28,775.76 in march 2010.Gross NPA is increase from previous year.

Name of Bank total assets Gross Npa Net Npa

2008-09 2009-10 2010-11 2008-09 2009-10 2010-11 2008-09 2009-10 2010-11

Public Sector Bank

State Bank of India 9,64,432.08 10,53,413.74 12,23,736.20 16345.64 17836.30 23073.52 9677.42 10870.17 12346.90

State Bank of Bikaner &

Jaipur 46,370.21 54,189.68 62,954.50 490.34 611.85 835.40 252.94 271.25 341.33

State Bank of Hyderabad 76,722.00 88,386.02 10669.8 486.04 645.67 1150.45 165.79 271.25 562.72

State Bank of Mysore 40485.79 45408.93 52032.46 367.61 595.26 863.74 129.07 299.79 467.88

State Bank of Patiala 69618.53 76,076.97 81286.25 573.90 1006.61 1381.68 263.63 482.72 620.77

State Bank of Travancore 49460.52 59454.7 70976.75 549.02 641.98 835.23 187.54 350.40 450.99

State Bank of India & its

Associates 12,47,089.13 13,76,930.04 15,01,655.96 18,812.55 21,337.67 28,140.02 10,676.39 12,545.58 14,790.59

Nationalised Bank

Allahabad Bank 97,648.00 1,21,699.21 1,51,286.36 1078.25 1220.85 1646.98 422.11 470.15 736.37

Andhra Bank 68,469.21 90,342.42 1,08,900.73 368.14 487.87 995.64 79.22 95.72 273.68

Bank of Baroda 2,27,406.73 2,78,316.71 3,58,397.18 1842.93 2196.06 2786.23 449.04 18.95 790.88

Bank of India 2,25,501.75 2,74,966.46 3,51,172.55 2470.88 4481.21 4356.60 628.21 2207.45 1944.99

Bank of Maharashtra 59,030.36 71,055.79 76,442.21 798.41 1209.79 1173.70 271.90 662.43 618.95

Canara Bank 2,19,645.80 2,64,741.09 3,36,078.76 2167.97 2504.53 2981.78 1507.25 1799.70 2377.43

Central Bank of India 1,47,655.24 1,82,671.64 2,09,757.32 2316.55 2457.89 2394.53 1063.00 727.00 847.00

Corporation Bank 86,905.80 1,11,667.30 1,43,508.59 559.22 650.94 790.23 138.30 197.25 397.74

Dena Bank 48,460.52 57,586.58 70,838.43 620.77 641.99 842.24 313.38 427.53 548.95

Indian Bank 84,121.74 1,01,389.32 1,21,718.31 459.18 458.59 720.02 93.81 144.93 397.04

Indian Overseas Bank 1,21,073.40 1,31,096.40 1,78,784.27 1923.41 3441.66 2793.42 999.14 1994.97 1328.42

Oriental Bank of

Commerce 1,12,582.58 1,37,431.00 1,61,343.38 1058.12 1468.75 1920.54 442.43 723.82 938.15

Punjab & Sind Bank 40,778.58 56,664.88 68,550.14 161.04 206.15 424.28 78.03 116.63 237.94

Punjab National Bank 2,46,918.62 2,96,632.79 3,78,325.25 2767.46 3214.41 4379.39 263.86 981.69 2038.63

Syndicate Bank 1,30,255.67 1,39,050.94 1,56,538.79 1594.54 2004.59 2589.12 631.77 963.20 1030.84

UCO Bank 1,11,664.16 1,37,319.47 1,63,398.45 1539.51 1665.02 3090.17 812.67 966.28 1824.55

Union Bank of India 1,60,975.51 1,95,161.85 2,35,984.44 1923.35 2663.87 3622.82 325.94 965.33 1803.44

United Bank of India 62,040.72 77,011.22 90,040.53 1019.56 1372.30 1355.78 525.00 779.00 757.41

Vijaya Bank 62,382.61 70,222.09 81,690.63 698.82 994.45 1259.19 292.29 581.83 741.16

IDBI Bank Limited 1,72,402.33 2,33,572.01 2,53,376.80 1435.69 2129.39 2784.73 948.96 1406.32 1677.91

Nationalised Banks 24,85,919.33 30,28,599.17 36,96,133.12 26,803.80 35,470.31 42,907.39 10,286.31 16,230.18 21,311.48

Public Sector Banks 37,33,008.46 44,05,529.21 51,97,789.08 45,616.35 56,807.98 71,047.41 20,962.70 28,775.76 36,102.07

23 | P a g e

PUBLIC SECTOR BANKS PROFIT

Table 3: Public Sectors Banks: Profits

Name of the Bank Gross Profit Provisions and Contigency Net Profit

2009 2010 2011 2009 2010 2011 2009 2010 2011

Nationalised Banks

Allahabad Bank 8506.65 9885.1 1238510 113255 134222 163147 76860 120633 142311

Andhra Bank 6140 7337.49 918823 63498 76397 114599 65305 104585 126707

Bank of Baroda 17849.2 19504.7 2469510 207780 187693 273993 222720 305833 424168

Bank of India 19399.2 20494.62 2439350 244946 296370 289552 300735 174107 248871

Bank of Maharashtra 4791.58 5326.81 609395 41836 37497 52464 37517 43958 33039

Canara Bank 19430.3 21609.86 2576705 189135 203938 208111 207242 302143 402589

Central Bank of India 11525.2 13799.55 1648561 86550 100029 133898 57124 105823 125241

Corporation Bank 7174.57 848103 1045962 85884 96648 120913 89277 117025 141327

Dena Bank 3877.62 459899 556737 30370 32932 61216 42266 51125 61163

Indian Bank 7865.77 903078 1054292 81051 119236 157761 124532 155499 171407

Indian Overseas Bank 11237.2 1138903 1332657 119793 113766 178809 132579 70696 107254

Oriental Bank of Commerece 9927.79 1145717 1304789 77956 128682 174227 89042 113468 150287

Punjab and Sind Bank 3654.86 434598 536959 29054 36876 48732 43118 50880 52617

Punjab National Bank 22191.9 2503222 3059906 259952 342092 462220 309088 390536 443350

Syndicate Bank 10440 1121464 1236598 75862 106038 170183 91282 81332 104795

UCO Bank 9141.28 1049225 1229622 64390 69345 178842 55772 101219 90654

Union Bank of India 13371.9 1527742 1849140 135545 158439 222304 172655 207492 208195

United Bank of india 4802.73 580768 697851 49252 55349 98302 18471 32236 52397

Vijaya Bank 5936.64 588010 637725 63643 54967 52286 26248 50730 52382

Total of Nationalized Banks 197264 12398687 26443092 2019752 2350516 3161559 2161833 2579320 3138754

State Bank Of India 76479.2 8596207 9721896 879400 915486 1707105 912123 916605 826452

Associates Of SBI

State Bank of Bikaner and Jaipur 4387.33 4559.9 5436.18 489.38 448.57 589.37 403.45 455.16 550.88

State Bank of Hyderabad 6478.82 7175.45 8835.04 687.16 898.08 1153.23 615.81 822.71 1166.24

State Bank of Mysore 3727.64 3984.64 4534.25 316.61 491.63 673.12 336.91 445.77 500.62

State Bank of Patiala 6435.69 6649.71 7233.65 433.91 756.82 1106.29 531.54 550.89 652.96

State Bank of Travancore 4696.25 4906.08 5810.01 448.44 288 448.24 607.84 684.27 727.73

Total of 7 Associates of SBI 25725.7 27275.78 31849.13 2375.5 2883.1 3970.25 2495.55 2958.8 3598.43

Total of State Bank Group 102205 8623483 9753745 881776 918369 1711075 914618.6 919564 830050

Total Of Public Sector Banks 299469 21022170 36196837 2901528 3268885 4872634 3076452 3498884 3968804

24 | P a g e

PROFIT

The total gross profit of the Public Sector Banks stood at Rs.3,61,968.37 crore

during 2010-11 as compared to Rs. 2,10,221.7 crore 2009-10. The net profit of the banks also went up from

Rs.39,688.04 crore in 2010-11 to Rs 34,988.84 crore during 2009-10. highest net profit was recorded by the

State Bank of India (8264.52 crore )followed by the Punjab National Bank (4433.5 crore) apart from these

two banks, other banks which have recorded remarkable growth in net profit in year 2010-11.

25 | P a g e

SECTOR WISE CLASSFICATION OF NPA

Appendix Table IV.2(A): Non-Performing Assets of Public Sector Banks - Sector-wise (As at end-March 2010)

(Amount in ` crore)

Sr. No.

Name of the Bank Priority Sector NPAs

Public Sector NPAs

Non-Priority Sector NPAs

Total NPAs

Amount Per cent to

total

Amount Per cent to

total

Amount Per cent to

total

Amount

Public Sector Banks 30,848 53.8 524 0.9 25,929 45.3 57,301

Nationalised Banks 19,908 56.1 280 0.8 15,283 43.1 35,470

1 Allahabad Bank 713 58.4 119 9.8 389 31.9 1,221

2 Andhra Bank 218 44.7 - - 270 55.3 488

3 Bank of Baroda 1,444 65.8 85 3.9 667 30.4 2,196

4 Bank of India 2,147 47.9 18 0.4 2,317 51.7 4,481

5 Bank of Maharashtra 795 65.7 - - 415 34.3 1,210

6 Canara Bank 1,423 56.8 - - 1,081 43.2 2,505

7 Central Bank of India 1,658 67.5 8 0.3 792 32.2 2,458

8 Corporation Bank 398 61.1 - - 253 38.9 651

9 Dena Bank 379 59.0 - - 263 41.0 642

10 Indian Bank 249 54.2 - - 210 45.8 459

11 Indian Overseas Bank

1,192 34.6 2 - 2,248 65.3 3,442

12 Oriental Bank of Commerce

911 62.0 - - 558 38.0 1,469

13 Punjab and Sind Bank

138 67.1 - - 68 32.9 206

14 Punjab National Bank

2,471 76.9 4 0.1 739 23.0 3,214

15 Syndicate Bank 1,091 54.4 12 0.6 902 45.0 2,005

16 UCO Bank 976 58.6 15 0.9 674 40.5 1,665

17 Union Bank of India 1,632 61.3 - - 1,032 38.7 2,664

18 United Bank of India 894 65.1 - - 478 34.9 1,372

19 Vijaya Bank 394 39.6 17 1.7 583 58.7 994

20 IDBI Bank Ltd. 785 36.9 - - 1,344 63.1 2,129

State Bank Group 10,940 50.1 244 1.1 10,646 48.8 21,831

21 State Bank of Bikaner and Jaipur

269 43.9 - - 343 56.1 612

22 State Bank of Hyderabad

290 44.9 - - 356 55.1 646

23 State Bank of India 9,073 50.9 235 1.3 8,529 47.8 17,836

24 State Bank of Indore 210 42.6 - - 283 57.4 493

25 State Bank of Mysore

291 49.0 3 0.5 301 50.5 595

26 State Bank of Patiala 543 54.0 - - 463 46.0 1,007

27 State Bank of Travancore

264 41.1 6 1.0 372 57.9 642

26 | P a g e

The above chart represent the NPA position in different types of sectors like

priority, Non priority and public sector. The highest % of NPAs are in the priority sector. The NPA % of

Non-priority sector is with 45% whereas 54% NPAs in priority sector which included agriculture, small-

scale industry, small business etc.

53.8

0.9

45.3

sector wise classification of NPA

Priority Sector NPAs

Non-Priority Sector NPAs

27 | P a g e

IMPACT OF NPA ON PUBLIC SECTOR BANKS

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.

Liquidity:-

Money is getting blocked, decreased profit lead to lack of enough cash at hand

which lead to borrowing money for shot\rtes 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.

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.

Credit loss:-

Bank is facing problem of NPA then it adversely affect the value of bank in

terms of market credit. It will lose it‟s goodwill and brand image and credit which have negative impact to

the people who are putting their money in the banks.

Early symptoms by which one can recognize a performing asset turning in to Non-performing asset:-

Four categories of early symptoms:-

---------------------------------------------------

(1) 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.

28 | P a g e

While monitoring the accounts it is found that partial amount is diverted to sister concern or parent

company.

(2) 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.

(3) Attitudinal Changes:

Avoidance of contact with bank.

Problem between partners.

(4) Others:

Changes in Government policies.

Death of borrower.

Competition in the market.

Preventative Measurement for NPA

Early Recognition of the Problem

Identifying Borrowers with Genuine Intent

29 | P a g e

RATIO ANALYSIS

The relationship between two related items of financial statements is known as ratio.

A ratio is just one number expressed in terms of another. The Ratio is customarily expressed in three

different ways. It may be expressed as a proportion between the two figures. Second it may be expressed in

terms of percentage. Third, it may be expressed in terms of rates.

The use of ratio has become increasingly popular during the last few years only.

Originally, the bankers used the current ratio to judge the capacity of the borrowing business enterprises to

repay the loan and make regular interest payments. Today it has assumed to be important tool that anybody

connected with the business turns to ratio for measuring the financial strength and the earning capacity of

the business.

30 | P a g e

1. GROSS NPA RATIO: Gross NPA Ratio is the ratio of gross NPA to gross advances of the Bank. Gross NPA

is the sum of all loan assets that are classified as NPA as per the RBI guidelines. The ratio is to be counted in

terms of percentage and the formula for GNPA is as follows:

Gross NPA ratio = Gross NPA

*100

Gross advances

S

no

.

Name of Bank Gross NPA Gross

Advances

Gross

NPA

Gross

Advances

Gross

NPA

Gross

Advances

Gross NPA to Gross

Advances

2009 2010 2011

Nationalised Banks 2009 2010 2011

1 Allahabad Bank 1078.25 59443.4 1220.85 71509.92 1646.98 91585.45 1.81 1.71 1.8

2 Andhra Bank 368.14 44427.6 487.87 56505.37 995.64 72154.45 0.83 0.86 1.38

3 Bank of Baroda 1842.93 144844.87 2196.06 133588.79 2786.23 171801.48 1.27 1.64 1.62

4 Bank of India 2470.88 144731.56 4481.21 135193.96 4356.6 165147.16 1.71 3.31 2.64

5 Bank of Maharashtra 798.41 34817.28 1209.79 40926.15 1173.7 47487.42 2.29 2.96 2.47

6 Canara Bank 2167.97 139036.91 2504.53 163290.97 2981.78 202724.02 1.56 1.53 1.47

7 Central Bank of India 2316.55 86740.27 2457.89 106102.69 2394.53 131390.02 2.67 2.32 1.82

8 Corporation Bank 559.22 48927.12 650.94 63629.05 790.23 87213.45 1.14 1.02 0.91

9 Dena Bank 620.77 29185.36 641.99 35721.41 842.24 45163.37 2.13 1.8 1.86

10 Indian Bank 459.18 51830.64 458.59 59963.3 720.02 72587.33 0.89 0.76 0.99

11 Indian Overseas Bank 1923.41 75809.54 3441.66 73025.81 2793.42 103087.47 2.54 4.71 2.71

12 Oriental Bank of

Commerece

1058.12 69064.72 1468.75 84183.94 1920.54 96838.91 1.53 1.74 1.98

13 Punjab and Sind Bank 161.04 24698.1 206.15 32738.67 424.28 42832.62 0.65 0.63 0.99

14 Punjab National Bank 2767.46 156098.45 3214.41 188306.11 4379.39 243998.78 1.77 1.71 1.79

15 Syndicate Bank 1594.54 82495.04 2004.59 82599.13 2589.12 97534.61 1.93 2.43 2.65

16 UCO Bank 1539.51 69669.05 1665.02 77568.26 3090.17 93246.24 2.21 2.15 3.31

17 Union Bank of India 1923.35 98264.85 2663.87 118272.7 3622.82 153022.46 1.96 2.25 2.37

18 United Bank of india 1019.56 35727.45 1372.3 42755.9 1355.78 53933.73 2.85 3.21 2.51

19 Vijaya Bank 698.82 35874.63 994.45 41934.53 1259.19 49222.24 1.95 2.37 2.56

20 IDBI Bank 1435.69 103915.07 2129.39 138583.59 2784.73 155995.5 1.38 1.54 1.79

Total of

Nationalized Banks

26803.8 1535601.9 35470.31 1746400.25 42907.39 2176966.7 1.75 2.03 1.97

1 State Bank Of India 16345.64 549296.81 17836.3 544408.53 23073.52 662444.06 2.98 3.28 3.48

Associates Of SBI

2 State Bank of Bikaner

and Jaipur

490.34 30088.1 611.85 35563.15 835.4 41743.91 1.63 1.72 2

3 State Bank of 486.04 43937.72 645.67 53296.94 1150.45 65422.67 1.11 1.21 1.76

31 | P a g e

Hyderabad

4 State Bank of Mysore 367.61 25869.88 595.26 29858.89 863.74 34425.69 1.42 1.99 2.51

5 State Bank of Patiala 573.9 43960.81 1006.61 47051.3 1381.68 52330.61 1.31 2.14 2.64

6 State Bank of

Travancore

549.02 32971.58 641.98 38802.37 835.23 46470.55 1.67 1.65 1.8

Total of 5 Associates

of SBI

Total of State Bank

Group

18812.55 726124.9 21337.67 748981.18 28140.02 902837.49 2.59 2.85 3.12

Total Of Public

Sector Banks

45616.35 2261726.8 56807.98 2495381.43 71047.41 3079804.2 2.02 2.28 2.31

GROSS NPA 2009

The table above indicates the quality of credit portfolio of the banks. High

gross NPA ratio indicates the low credit portfolio of bank and vice-a-versa. We can see from the above table

that the State bank of india has the higher gross NPA ratio of 2.98 % followed by the united bank of india

with 2.85 %. Central bank of india, Indian overseas bank, bank of Maharashtra also have higher gross

NPA ratio with 2.67 %, 2.54% and 2.29%. Whereas the Punjab & Sind bank ,Andhra Bank, Indian bank

showed lower ratio with 0.65 %, 0.83 % and 0.89 % in the year 2009

GROSS NPA 2010

The table above indicates the quality of credit portfolio of the banks. High gross

NPA ratio indicates the low credit portfolio of bank and vice-a-versa. We can see from the above table that

the Bank of india has the higher gross NPA ratio of 3.31 % followed by the State bank of india with 3.28

%. United Bank of India, bank of Maharashtra also have higher gross NPA ratio with 3.21 % & 2.96%.

Whereas the Punjab & Sind bank, Indian Bank, Andhra Bank showed lower ratio with 0.63 %, 0.76 %

and 0.86 % in the year 2010

GROSS NPA 2011

The table above indicates the quality of credit portfolio of the banks. High gross

NPA ratio indicates the low credit portfolio of bank and vice-a-versa. We can see from the above table that

the State Bank of india has the higher gross NPA ratio of 3.48 % followed by the UCO Bank with 3.31 %.

Indian Overseas Bank , Syndicate Bank also have higher gross NPA ratio with 2.71 % & 2.65%. Whereas

the Corporation Bank , Indian Bank, Punjab & Sind bank showed lower ratio with 0.91 %, 0.99 % and

0.99 % in the year 2011

32 | P a g e

2. NET NPA RATIO

The net NPA percentage is the ratio of net NPA to net advances, in which the

provision is to be deducted from the gross advance. The provision is to be made for NPA account. The

formula for that is:

Net NPA Ratio = Gross NPA-Provision

* 100

Gross advances-Provision

S no. Name of Bank Gross NPA Provision

Gross

Advances Gross NPA Provision

Gross

Advances Gross NPA Provision

Gross

Advances

2009 2010 2011

1 Allahabad Bank 1078.25 268.55 59443.4 1220.85 313 71509.92 1646.98 830 91585.45 1.37 0.55 0.9

2 Andhra Bank 368.14 98.66 44427.6 487.87 170 56505.37 995.64 305 72154.45 0.61 0.33 0.96

3 Bank of Baroda 1842.93 435.98 144844.87 2196.06 269 133588.8 2786.23 901 171801.5 0.97 0.98 1.1

4 Bank of India 2470.88 697.25 144731.56 4481.21 623 135194 4356.6 1754 165147.2 1.23 2.04 1.59

5 Bank of Maharashtra 798.41 86.31 34817.28 1209.79 187 40926.15 1173.7 251 47487.42 2.05 2.36 1.95

6 Canara Bank 2167.97 875 139036.91 2504.53 900 163291 2981.78 1426 202724 0.94 0.67 0.77

7 Central Bank of India 2316.55 289.06 86740.27 2457.89 322 106102.7 2394.53 288 131390 2.35 2.05 1.61

8 Corporation Bank 559.22 123 48927.12 650.94 170 63629.05 790.23 345 87213.45 0.89 0.48 0.51

9 Dena Bank 620.77 264 29185.36 641.99 199 35721.41 842.24 97 45163.37 1.23 1.53 1.65

10 Indian Bank 459.18 349.58 51830.64 458.59 14 59963.3 720.02 392 72587.33 0.21 0.11 0.45

11 Indian Overseas Bank 1923.41 125.44 75809.54 3441.66 366 73025.81 2793.42 919 103087.5 2.38 3.5 1.83

12 Oriental Bank of Commerece 1058.12 -189.5 69064.72 1468.75 171 84183.94 1920.54 532 96838.91 1.8 1.12 1.44

13 Punjab and Sind Bank 161.04 65.49 24698.1 206.15 63 32738.67 424.28 92 42832.62 0.39 0.35 0.78

14 Punjab National Bank 2767.46 377.09 156098.45 3214.41 821 188306.1 4379.39 994 243998.8 1.54 1.19 1.39

15 Syndicate Bank 1594.54 345.41 82495.04 2004.59 447 82599.13 2589.12 531 97534.61 1.52 1.8 2.12

16 UCO Bank 1539.51 370.07 69669.05 1665.02 268 77568.26 3090.17 354 93246.24 1.69 1.7 2.95

17 Union Bank of India 1923.35 585.22 98264.85 2663.87 546 118272.7 3622.82 699 153022.5 1.37 1.67 1.92

18 United Bank of india 1019.56 244.99 35727.45 1372.3 199 42755.9 1355.78 273 53933.73 2.18 2.59 2.02

19 Vijaya Bank 698.82 100.56 35874.63 994.45 134 41934.53 1259.19 474 49222.24 1.67 1.25 1.61

20 IDBI Bank 1435.69 133.58 103915.07 2129.39 144 138583.6 2784.73 236 155995.5 1.25 1.37 1.64

Total of Nationalized Banks 26803.8 5645.74 1535601.9 35470.31 6326 1746400 42907.39 11694 2176967 1.38 1.67 1.44

1 State Bank Of India 16345.64 2000.94 549296.81 17836.3 2475 544408.5 23073.52 4622 662444.1 2.62 2.83 2.8

Associates Of SBI

2 State Bank of Bikaner and Jaipur 490.34 75.91 30088.1 611.85 73 35563.15 835.4 142 41743.91 1.56 1.52 1.67

3 State Bank of Hyderabad 486.04 -3050 43937.72 645.67 135 53296.94 1150.45 138 65422.67 0.93 0.96 1.55

4 State Bank of Mysore 367.61 21.51 25869.88 595.26 54 29858.89 863.74 86 34425.69 1.02 1.82 2.26

5 State Bank of Patiala 573.9 76.79 43960.81 1006.61 73 47051.3 1381.68 219 52330.61 1.31 1.99 2.23

6 State Bank of Travancore 549.02 105.28 32971.58 641.98 59 38802.37 835.23 81 46470.55 1.67 1.51 1.63

Total of 5 Associates of SBI

Total of State Bank Group 18812.55 -769.57 726124.9 21337.67 2870 748981.2 28140.02 5287.94 902837.5 2.69 2.48 2.55

Total Of Public Sector Banks 45616.35 4876.17 2261726.8 56807.98 9195.52 2495381 71047.41 16981.44 3079804 1.81 1.92 1.77

Nationalised Banks 2008-2009 2009-2010 2010-2011

Net NPA to Net

Advances

33 | P a g e

NET NPA 2008-09

This ratio indicates the degree of risk in the portfolio of the banks. High NPA ratio indicates the high

quantity of risky assets in the Banks for which no provision are made. State Bank of India has the highest

NPA ratio of 2.85 % followed by the Indian overseas Bank with 2.38 %.Indian Bank has showed the lowest

NPA ratio 0 .21% and Punjab & sind Bank have also showed lower NPA ratio 0.39% in 2008-09

NET NPA 2009-10

This ratio indicates the degree of risk in the portfolio of the banks. High NPA ratio indicates the

high quantity of risky assets in the Banks for which no provision are made. From the table it becomes clear

that the NPA ratio of some banks have been improved quite well as compared to the previous year and some

banksneeds to be improve . Indian Overseas bank has the highest NPA ratio of 3.5 % followed by the State

Bank of India with 2.83 %.Indian Bank has showed the lowest NPA ratio 0 .11% and Andhra Bank have

also showed lower NPA ratio 0.33% in 2009-10

NET NPA 2010-11

This ratio indicates the degree of risk in the portfolio of the banks. High NPA ratio indicates the

high quantity of risky assets in the Banks for which no provision are made. From the table it becomes clear

that the NPA ratio of most of the banks ration has been increased from previous years that means banks are

performing well . Indian UCO bank has the highest NPA ratio of 2.95 % followed by the State Bank of India

with 2.8 %.Indian Bank has showed the lowest NPA ratio 0 .45% and Corporation bank have also showed

lower NPA ratio 0.51% in 2010-11

34 | P a g e

3. PROVISION RATIO

Provisions are to be made for to keep safety against the NPA, & it directly

affect on the gross profit of the Banks. The provision Ratio is nothing but total provision held for NPA to

gross NPA of the Banks. The formula for that is,

Provision Ratio= Total Provision

*100

Gross NPAs

35 | P a g e

S no. Name of Bank Gross NPA Provision Gross NPA Provision Gross NPA Provision

2009 2010 2011

1 Allahabad Bank 1078.25 268.55 1220.85 313 1646.98 830 24.91 25.66 50.41

2 Andhra Bank 368.14 98.66 487.87 170 995.64 305 26.8 34.87 30.65

3 Bank of Baroda 1842.93 435.98 2196.06 269 2786.23 901 23.66 12.23 32.33

4 Bank of India 2470.88 697.25 4481.21 623 4356.6 1754 28.22 13.9 40.27

5 Bank of Maharashtra 798.41 86.31 1209.79 187 1173.7 251 10.81 15.47 21.35

6 Canara Bank 2167.97 875 2504.53 900 2981.78 1426 40.36 35.93 47.83

7 Central Bank of India 2316.55 289.06 2457.89 322 2394.53 288 12.48 13.11 12.04

8 Corporation Bank 559.22 123 650.94 170 790.23 345 21.99 26.12 43.69

9 Dena Bank 620.77 264 641.99 199 842.24 97 42.53 31.07 11.48

10 Indian Bank 459.18 349.58 458.59 137 720.02 392 76.13 29.87 54.46

11 Indian Overseas Bank 1923.41 125.44 3441.66 366 2793.42 919 6.522 10.62 32.92

12 Oriental Bank of Commerece 1058.12 -189.5 1468.75 171 1920.54 532 -17.9 11.61 27.68

13 Punjab and Sind Bank 161.04 65.49 206.15 63 424.28 92 40.67 30.48 21.66

14 Punjab National Bank 2767.46 377.09 3214.41 821 4379.39 994 13.63 25.55 22.7

15 Syndicate Bank 1594.54 345.41 2004.59 447 2589.12 531 21.66 22.3 20.49

16 UCO Bank 1539.51 370.07 1665.02 268 3090.17 354 24.04 16.12 11.45

17 Union Bank of India 1923.35 585.22 2663.87 546 3622.82 699 30.43 20.51 19.29

18 United Bank of india 1019.56 244.99 1372.3 199 1355.78 273 24.03 14.49 20.11

19 Vijaya Bank 698.82 100.56 994.45 134 1259.19 474 14.39 13.5 37.67

20 IDBI Bank 1435.69 133.58 2129.39 144 2784.73 236 9.304 6.751 8.487

Total of Nationalized Banks 26803.8 5645.74 35470.31 6449 42907.39 11694 21.06 18.18 27.25

1 State Bank Of India 16345.64 2000.94 17836.3 2475 23073.52 4622 12.24 13.88 20.03

Associates Of SBI

2 State Bank of Bikaner and Jaipur 490.34 75.91 611.85 73 835.4 142 15.48 12 16.99

3 State Bank of Hyderabad 486.04 -305 645.67 135 1150.45 138 -62.8 20.87 11.95

4 State Bank of Mysore 367.61 21.51 595.26 54 863.74 86 5.851 9.099 9.986

5 State Bank of Patiala 573.9 76.79 1006.61 73 1381.68 219 13.38 7.301 15.88

6 State Bank of Travancore 549.02 105.28 641.98 59 835.23 81 19.18 9.151 9.642

Total of 5 Associates of SBI

Total of State Bank Group 18812.55 1975.43 21337.67 2870 28140.02 5287.94 10.5 13.45 18.79

Total Of Public Sector Banks 45616.35 7621.17 56807.98 9318.86 71047.41 16981.44 16.71 16.4 23.9

Provision Ratio

Nationalised Banks 2008-2009 2009-2010 2010-2011

36 | P a g e

PROVISION RATIO 2008-09

This Ratio indicates the degree of safety measures adopted by the Banks. It has direct bearing on the

profitability, Dividend and safety of shareholders‟ fund. If the provision ratio is less, it indicates that the

Banks has made under provision. The highest provision ratio is showed by Indian Bank with 76.13 %

followed by Dena Bank with 42.53 %. The lowest provision ratio is showed by oriental bank of commerce

with -17.9 % and in the year 2008-09.

PROVISION RATIO 2009-10

This Ratio indicates the degree of safety measures adopted by the Banks. It has direct bearing on the

profitability, Dividend and safety of shareholders‟ fund. If the provision ratio is less, it indicates that the

Banks has made under provision. The highest provision ratio is showed by Canara bank with 35.93 %

followed by Andhra Bank with 34.87 %. The lowest provision ratio is showed by IDBI bank 6.75 % and in

the year 2009-10

PROVISION RATIO 2010-11

This Ratio indicates the degree of safety measures adopted by the Banks. It has direct bearing on the

profitability, Dividend and safety of shareholders‟ fund. If the provision ratio is less, it indicates that the

Banks has made under provision. The highest provision ratio is showed by Indian bank with 54.46 %

followed by Allahabad Bank with 50.41 %. The lowest provision ratio is showed by state bank of

Travancore 9.642 % and in the year 2010-11

37 | P a g e

4. PROBLEM ASSET RATIO

It is the ratio of gross NPA to total asset of the bank. The formula for that is:

Problem Asset Ratio = Total Assets * 100

Gross NPA

S no. Name of Bank Total assets

Gross NPA Total assets

Gross NPA Total assets

Gross NPA problem asset ratio

Nationalised Banks 2008-2009 2009-2010 2009-2010 2008-09 2009-10 2010-

11

1 Allahabad Bank 97,648.00 1078.25 1,21,699.21 1220.85 1,51,286.36 1646.98 1.10422 1.00317 1.08865

2 Andhra Bank 68,469.21 368.14 90,342.42 487.87 1,08,900.73 995.64 0.53767 0.54002 0.91426

3 Bank of Baroda 2,27,406.73 1842.93 2,78,316.71 2196.06 3,58,397.18 2786.23 0.81041 0.78905 0.77741

4 Bank of India 2,25,501.75 2470.88 2,74,966.46 4481.21 3,51,172.55 4356.6 1.09573 1.62973 1.24059

5 Bank of Maharashtra 59,030.36 798.41 71,055.79 1209.79 76,442.21 1173.7 1.35254 1.70259 1.53541

6 Canara Bank 2,19,645.80 2167.97 2,64,741.09 2504.53 3,36,078.76 2981.78 0.98703 0.94603 0.88723

7 Central Bank of India 1,47,655.24 2316.55 1,82,671.64 2457.89 2,09,757.32 2394.53 1.56889 1.34552 1.14157

8 Corporation Bank 86,905.80 559.22 1,11,667.30 650.94 1,43,508.59 790.23 0.64348 0.58293 0.55065

9 Dena Bank 48,460.52 620.77 57,586.58 641.99 70,838.43 842.24 1.28098 1.11483 1.18896

10 Indian Bank 84,121.74 459.18 1,01,389.32 458.59 1,21,718.31 720.02 0.54585 0.45231 0.59155

11 Indian Overseas Bank 1,21,073.40 1923.41 1,31,096.40 3441.66 1,78,784.27 2793.42 1.58863 2.62529 1.56245

12 Oriental Bank of Commerece 1,12,582.58 1058.12 1,37,431.00 1468.75 1,61,343.38 1920.54 0.93986 1.06872 1.19034

13 Punjab and Sind Bank 40,778.58 161.04 56,664.88 206.15 68,550.14 424.28 0.39491 0.36381 0.61893

14 Punjab National Bank 2,46,918.62 2767.46 2,96,632.79 3214.41 3,78,325.25 4379.39 1.1208 1.08363 1.15757

15 Syndicate Bank 1,30,255.67 1594.54 1,39,050.94 2004.59 1,56,538.79 2589.12 1.22416 1.44162 1.65398

16 UCO Bank 1,11,664.16 1539.51 1,37,319.47 1665.02 1,63,398.45 3090.17 1.3787 1.21252 1.89119

17 Union Bank of India 1,60,975.51 1923.35 1,95,161.85 2663.87 2,35,984.44 3622.82 1.19481 1.36495 1.53519

18 United Bank of india 62,040.72 1019.56 77,011.22 1372.3 90,040.53 1355.78 1.64337 1.78195 1.50574

19 Vijaya Bank 62,382.61 698.82 70,222.09 994.45 81,690.63 1259.19 1.12022 1.41615 1.54141

20 IDBI Bank 1,72,402.33 1435.69 2,33,572.01 2129.39 2,53,376.80 2784.73 0.83276 0.91166 1.09905

Total of Nationalized Banks 24,85,919.33 26803.8 30,28,599.17 35470.31 36,96,133.12 42907.4 1.07822 1.17118 1.16087

1 State Bank Of India 9,64,432.08 16345.64 10,53,413.74 17836.3 12,23,736.20 23073.5 1.69485 1.69319 1.8855

Associates Of SBI

2 State Bank of Bikaner and Jaipur 46,370.21 490.34 54,189.68 611.85 62,954.50 835.4 1.05745 1.12909 1.32699

3 State Bank of Hyderabad 76,722.00 486.04 88,386.02 645.67 10669.8 115.045 0.63351 0.73051 1.07823

4 State Bank of Mysore 40485.79 367.61 45408.93 595.26 52032.46 863.74 0.908 1.31089 1.66

5 State Bank of Patiala 69618.53 573.9 76,076.97 1006.61 81286.25 1381.68 0.82435 1.32315 1.69977

6 State Bank of Travancore 49460.52 549.02 59454.7 641.98 70976.75 835.23 1.11002 1.07978 1.17677

Total of 5 Associates of SBI 2,82,657.05 2,466.91 3,23,516.30 3,501.37 2,77,919.76 4,031.10 0.87276 1.08229 1.45045

Total of State Bank Group 12,47,089.13 18,812.55 13,76,930.04 21,337.67 15,01,655.96 27104.6 1.50852 1.54966 1.80498

Total Of Public Sector Banks 37,33,008.46 45,616.35 44,05,529.21 56,807.98 51,97,789.08 70012 1.22197 1.28947 1.34696

38 | P a g e

PROBLEM ASSET RATIO 2008-09

It has been direct bearing on return on assets as well as liquidity risk

management of the bank. High problem asset ratio, which means high liquid. from the above table it

becomes clear that State bank of India and United Bank of india have the high ratio of 1.69% and 1.69%.thts

ratio implies that the both above banks have the liquid assets through which they will be able to repay their

liabilities of deposits quickly as compared to other banks in year 2008-09

PROBLEM ASSET RATIO 2009-10

It has been direct bearing on return on assets as well as liquidity risk

management of the bank. High problem asset ratio, which means high liquid. from the above table it

becomes clear that Indian overseas bank and United Bank of india have the high ratio of 2.62% and

1.78%.thts ratio implies that the both above banks have the liquid assets through which they will be able to

repay their liabilities of deposits quickly as compared to other banks in year 2009-10

PROBLEM ASSET RATIO 2010-11

It has been direct bearing on return on assets as well as liquidity risk

management of the bank. High problem asset ratio, which means high liquid. from the above table it

becomes clear that UCO Bank and Syndicate Bank have the high ratio of 1.89% and 1.92%.thts ratio implies

that the both above banks have the liquid assets through which they will be able to repay their liabilities of

deposits quickly as compared to other banks in year 2010-11

39 | P a g e

5. CAPITAL ADEQUACY RATIO

Capital Adequacy Ratio can be defined as ratio of the capital of the Bank, to its assets,

which are weighted/adjusted according to risk attached to them i.e.

Capital Adequacy Ratio = Capital

* 100

Risk Weighted Assets

S no. Name of Bank capital adequacy ratio

Nationalised Banks 2008-09 2009-10 2010-11

1 Allahabad Bank 11.99 13.11 13.62

2 Andhra Bank NA 13.22 13.93

3 Bank of Baroda 12.94 14.05 14.36

4 Bank of India 12.04 13.01 12.94

5 Bank of Maharashtra NA 12.05 12.78

6 Canara Bank 13.25 14.10 13.43

7 Central Bank of India 9.39 13.12 12.23

8 Corporation Bank NA 13.61 15.37

9 Dena Bank NA 12.07 12.77

10 Indian Bank NA 13.98 12.71

11 Indian Overseas Bank NA 13.2 14.78

12 Oriental Bank of Commerece

NA 12.98 12.54

13 Punjab and Sind Bank NA 14.35 13.10

14 Punjab National Bank 13.46 14.03 14.16

15 Syndicate Bank 11.82 12.68 12.70

16 UCO Bank NA 13.27 12.51

17 Union Bank of India 11.24 13.28 12.80

18 United Bank of india 11.02 11.93 13.21

19 Vijaya Bank NA 13.15 12.50

20 IDBI Bank NA 11.57 11.31

1 State Bank Of India NA 14.25 13.39

Associates Of SBI

2 State Bank of Bikaner and Jaipur

12.51 14.52 13.30

3 State Bank of Hyderabad 11.97 11.53 14.90

4 State Bank of Mysore 11.73 12.99 12.42

5 State Bank of Patiala 13.56 12.60 13.26

40 | P a g e

6 State Bank of Travancore 13.53 14.03 13.74

The capital adequacy ratio is important for the to maintain as per the banking

regulations. As far as this ratio is concerned the Corporation Bank has shown much appreciated result by

acquiring the ratio of 15.37% followed by the State Bank of Hyderabad and Indian Overseas Bank having

ratios of 14.90%and 14.70% in 2011

Tire-I: Paid up capital, Statutory Reserve, Revenue capital reserves

(excluding revolution reserve) and other undisclosed reserves LESS accumulated losses

till the current year, investment in subsidiaries, other intangible assets.

Tire-II: Property Revaluation discounted ,Subordinate Assets, Privately placed

Bonds, Hybrid capital, Investment Fluctuation Reserve, provisions on standard assets. &

Capital should not exceed Tire-I

6.SUB-STANDARD ASSETS RATIO

It is the ratio of Total Substandard Assets to Gross NPA of the bank.

Substandard Assets Ratio= total substandard assets

*100

Gross NPAs

The ratios calculated below are for the entire public sector banks:

It indicates scope of up gradation/improvement in NPA.

Higher substandard asset ratio means that in whole NPA the sub standard ratio has major proportion, which

indicates that there is a high scope for advance up gradation or improvement because it will be very easy to

recover the loan as minimum duration of default. In 2008 this ratio of Public Sector bank was 36.98% but

dropped in 2009 & than again it increased in 2010, which means there is a need of advance up gradation.

Rs in crore

year 2008 2009 2010

Substandard Assets 16870 19521 27688 Gross NPA 45616 56808 71047

Calculation of Ratio

36.98 34.363 38.97

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REFERENCES

Prshant k reddy (2002),” A comparative study of non performing assets in india in global context”http://www.crisil.com/youngthoughtleader/winners/topic3-Prashanth-Reddy-IIM-AHM.PDF Desai(2002) “Distressed Asset Management: A Reality Checkhttp://www.nishithdesai.com/Research-Papers/IVCJ-Distressed%20Asset%20Mgmt-A%20Reality%20Check.pdf

R. Ranjan and S.C. Dhal, 2003, Non-Performing Loans and Terms of Credit of Public Sector Banks in India: An Empirical Assessment, RBI Occasional Papers, 24(3):81-121.19 Mukherjee, P. (2003) Dealing with NPA’s: Lessons from International Experiences.

Misra(2003)” Pro-cyclical Management of Banks’ Non-Performing Loans by the Indian Public Sector Banks” http://www.bis.org/repofficepubl/arpresearch201003.08.pdf

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Khasnobis(2005)”NPAEmergingChallenge” http://203.115.117.202/Arcil1/knowledge_centre/publications/papers/NPA_S1_Emerging-Challenges.pdf B.Satish Kumar(2005)”Non Performing Assets in Indian banks” Das, S & Bose, S.K (2005): ‘Risk Modelling – A Markovian Approach’, The Alternative, Vol.IV, No.1, March 2005, pp 22-27. Chugh (2005), " Indian baking today-Impact of Reforms"

Harpreet (2006) “Credit management and problem of NPAs in Public Sector Banks” Kumar (2006) "Banking Sector Efficiency in Globalize Economy,"

Gourav Vallabh, Anoop Bhatia and Saurabh Mishra(2007)” Non-Performing Assets of Indian Public, Private and Foreign Sector Banks: An Empirical Assessment” The IUP Journal of Bank Management, 2007, vol. VI, issue 3, pages 7-28

Karunakar, M., Vasuki, K. & Saravanan, S. (2008), Are Non-performing Assets Gloomy or Greedy from Indian Perspective. Research Journal of Social Sciences, 3, pp. 4-12.

Mohit Kakkar (2008 -2010)” COMPARATIVE ANALYSIS ON NON PERFORMING ASSETS OF CANARA BANK AND PUBLIC SECTOR BANKS”

Goyal kanika(2010)Empirical study of non performing assets management of Indian public sector banks”

Asia Pacific Journal of Research in Business Management Year : 2010, Volume : 1

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BIBLOGRAPHY

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www.moneycontrol.com

www.ijrcm.org.in