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TERM PAPER
ON
“RISK ANALYSIS IN BANKING SECTOR”
FOR THE PARTIAL FULLFILMENT OF
POST-GRADUATE DIPLOMA IN MANAGEMENT
SUBMITTED TO: SUBMITTED BY:
Dr. VIDYA SHEKRI AAKSHI MAHAJAN (BM-010186)Finance faculty PANKAJ Kr. GOEL (BM-010199)
INSTITUTE OF MANAGEMENT STUDIES
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DECLARATION CERTIFICATE
We want to declare that we, students of 1st year of Post Graduate Diploma Of
Management, have prepared a research methodologies project entitled as ““RISK
ANALYSIS IN POWER SECTOR”, for the partial fulfillment of post graduate
diploma in management by our own efforts and research.
Aakshi Mahajan (BM-010186)Pankaj Kr. Goel(BM-010199)
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CERTIFICATE FROM THE HEAD
This is to certify that Aakshi Mahajan (BM 010186), Pankaj Kr. Goel(BM 010199),
students of 2ndyear of Post Graduate Diploma Of Management, have prepareda project entitled as “RISK ANALYSIS IN BANKING SECTOR “as a part of
partial fulfillment of requirement of post graduate diploma of management by
INSTITUTE OF MANAGEMENT STUDIES, GHAZIABAD.
Dr.VIDYA SHEKRI
(Faculty of finance)
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ACKNOWLEDGEMENT
No task whatever big or small can be completed without proper guidance and
encouragement. It gives us a great pleasure to our deep sense of gratitude and
reverence to every person who created a congenial atmosphere for successful
completion of this project.
We would like to express our gratitude and profound thanks to Dr. VIDYA
SHEKRI (faculty of finance), Institute of Management Studies, Ghaziabad
for his valuable sustained, guidance, invaluable suggestions and constant
encouragement without which it would not have been possible for us to
complete this project.
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EXECUTIVE SUMMARY
Indian banking sector has expanded in an exponential manner in the past decade offering
a wide range of services to rural, urban and metropolitan areas of the country. The
banking sector reform initiated by the Reserve Bank of India has created a competitive
environment for both public and private sector banks and is therefore vigorously
expanding their customer base to offer various services. In light of the recent global
financial crisis, risk measurement and management in the Indian banking sector is gaining
importance. Credit risk is the core of all banking activities to both private and public
sector banks. We have taken data for non performing assets of 27 public sector banks for
the period of 2006-2010.We found that non performing assets volume increased from
2006-2011.
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INTRODUCTION
Recent time has witnessed the world economy develop serious difficulties in terms of
lapse of banking & financial institutions and plunging demand. Prospects became
very uncertain causing recession in major economies. However, amidst all this chaos
India‟s banking sector has been amongst the few to maintain resilience.
A progressively growing balance sheet, higher pace of credit expansion, expanding
profitability and productivity akin to banks in developed markets, lower incidence of
non- performing assets and focus on financial inclusion have contributed to making
Indian banking vibrant and strong. Indian banks have begun to revise their growth
approach and re-evaluate the prospects on hand to keep the economy rolling. The way
forward for the Indian banks is to innovate to take advantage of the new business
opportunities and at the same time ensure continuous assessment of risks.
A rigorous evaluation of the health of commercial banks, recently undertaken by the
Committee on Financial Sector Assessment (CFSA) also shows that the commercial
banks are robust and versatile. The single-factor stress tests undertaken by the CFSA
divulge that the banking system can endure considerable shocks arising from largepossible changes in credit quality, interest rate and liquidity conditions. These stress
tests for credit, market and liquidity risk show that Indian banks are by and large
resilient.
Current scenario reveals that in December 2011 Reserve bank of India has done a
stress test on Indian banks regarding the issue of increase in non performing assets
and they found that inter bank lending has increased.
Now Securitization laws changes to allow banks „buy‟ property seized from
defaulting borrowers. SARFAESI Act i.e. Securitization and reconstruction of
financial assets and enforcement of security act have been introduced last week in
order to avoid credit risk at banks.
Thus, it has become far more imperative to contemplate the role of the Banking
Industry in fostering the long-term growth of the economy. With the purview of
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economic stability and growth, greater attention is required on both political and
regulatory commitment to long term development programme.
RISK INVOLVED IN BANKING SECTOR
Banks face a number of risks in order to conduct their business, and how well these
risks are managed and understood is a key driver behind profitability, and how much
capital a bank is required to hold. Some of the main risks faced by banks include:
▪ Credit risk: Risk of loss arising from a borrower who does not make payments as
promised.
▪ Liquidity risk: Risk that a given security or asset cannot be traded quickly enough
in the market to prevent a loss (or make the required profit).
▪ Market risk: Risk that the value of a portfolio, either an investment portfolio or a
trading portfolio, will decrease due to the change in value of the market risk
factors.
▪ Operational risk: Risk arising from execution of a company's business functions.
▪ Reputational risk: A type of risk related to the trustworthiness of business.
The capital requirement is a bank regulation, which sets a framework on how banksand depository institutions must handle their capital. The categorization of assets and
capital is highly standardized so that it can be risk weighted.
We are focused on Credit risk of banks for our project. Thus we‟ll be talking about
credit risk at banks and the current scenario of banking sector.
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CREDIT RISK
Credit risk is an investor's risk of loss arising from a borrower who does not make
payments as promised. Such an event is called a default. Other terms for credit risk
are default risk and counterparty risk.
Investor losses include lost principal and interest, decreased cash flow, and increased
collection costs, which arise in a number of circumstances:
▪ A consumer does not make a payment due on a mortgage loan, credit card, line of
credit, or other loan
▪ A business does not make a payment due on a mortgage, credit card, line of credit,
or other loan
▪ A business or consumer does not pay a trade invoice when due
▪ A business does not pay an employee's earned wages when due
▪ A business or government bond issuer does not make a payment on a coupon or
principal payment when due
▪ An insolvent insurance company does not pay a policy obligation.
▪ An insolvent bank won't return funds to a depositor.
TYPES OF CREDIT RISK
Credit risk can be classified in the following way:
▪ Credit Default Risk - The risk of loss when the bank considers that the obligor is
unlikely to pay its credit obligations in full or the obligor is more than 90 days
past due on any material credit obligation; default risk may impact all credit-
sensitive transactions, including loans, securities and derivatives.
▪ Concentration Risk - The risk associated with any single exposure or group of
exposures with the potential to produce large enough losses to threaten a
bank's core operations. It may arise in the form of single name concentration
or industry concentration.
▪ Country Risk - The risk of loss arising when a sovereign state freezes foreign
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currency payments (transfer/conversion risk) or when it defaults on its
obligations (sovereign risk).
ASSESSING CREDIT RISK
Significant resources and sophisticated programs are used to analyze and manage risk.
Some companies run a credit risk department whose job is to assess the financial
health of their customers, and extend credit accordingly. They may use in house
programs to advise on avoiding, reducing and transferring risk. They also use third
party provided intelligence. Companies like Standard & Poor's, Moody's Analytics,
Fitch Ratings, and Dun and Bradstreet provide such information for a fee.
Most lenders employ their own models (credit scorecards) to rank potential and
existing customers according to risk, and then apply appropriate strategies. With
products such as unsecured personal loans or mortgages, lenders charge a higher price
for higher risk customers and vice versa. With revolving products such as credit cards
and overdrafts, risk is controlled through the setting of credit limits. Some products
also require security, most commonly in the form of property.
Credit scoring models also form part of the framework used by banks or lending
institutions grant credit to clients. For corporate and commercial borrowers, these
models generally have qualitative and quantitative sections outlining various aspects
of the risk including, but not limited to, operating experience, management expertise,
asset quality, and leverage and liquidity ratios, respectively. Once this information has
been fully reviewed by credit officers and credit committees, the lender provides the
funds subject to the terms and conditions presented within the contract (as outlined
above).
Credit risk has been shown to be particularly large and particularly damaging for very
large investment projects, so-called megaprojects. This is because such projects are
especially prone to end up in what has been called the "debt trap," i.e., a situation
where – due to cost overruns, schedule delays, etc. – the costs of servicing debt
becomes larger than the revenues available to pay interest on and bring down the debt
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Sovereign risk
Sovereign risk is the risk of a government becoming unwilling or unable to meet its
loan obligations, or reneging on loans it guarantees. The existence of sovereign risk
means that creditors should take a two-stage decision process when deciding to lend
to a firm based in a foreign country.
Counterparty risk
Counterparty risk, known as default risk, is the risk that an organization does not pay
out on a bond, credit derivative, credit insurance contract, or other trade or transaction
when it is supposed to. Even organizations who think that they have hedged their bets
by buying credit insurance of some sort still face the risk that the insurer will be
unable to pay, either due to temporary liquidity issues or longer term systemic issues.
Large insurers are counterparties to many transactions, and thus this is the kind of risk
that prompts financial regulators to act.
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MITIGATING CREDIT RISK
Lenders mitigate credit risk using several methods:
▪ Risk-based pricing: Lenders generally charge a higher interest rate to borrowers
who are more likely to default, a practice called risk-based pricing. Lenders
consider factors relating to the loan such as loan purpose, credit rating, and
loan-to-value ratio and estimates the effect on yield (credit spread).
▪ Covenants: Lenders may write stipulations on the borrower, called covenants, into
loan agreements:
▪ Periodically report its financial condition
▪ Refrain from paying dividends, repurchasing shares, borrowing further, or other
specific, voluntary actions that negatively affect the company's financial
position.
▪ Repay the loan in full, at the lender's request, in certain events such as changes in
the borrower's debt-to-equity ratio or interest coverage ratio.
▪ Credit insurance and credit derivatives: Lenders and bond holders may hedge
their credit risk by purchasing credit insurance or credit derivatives. These
contracts transfer the risk from the lender to the seller (insurer) in exchange
for payment. The most common credit derivative is the credit default swap.
▪ Tightening: Lenders can reduce credit risk by reducing the amount of credit
extended, either in total or to certain borrowers. For example, a distributor
selling its products to a troubled retailer may attempt to lessen credit risk by
reducing payment terms from net 30 to net 15.
▪ Diversification: Lenders to a small number of borrowers face a high degree of
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unsystematic credit risk, called concentration risk. Lenders reduce this risk
by diversifying the borrower pool.
▪
Deposit insurance: Many governments establish deposit insurance to guaranteebank deposits of insolvent banks. Such protection discourages consumers from
withdrawing money when a bank is becoming insolvent, to avoid a bank run,
and encourages consumers to hold their savings in the banking system instead
of in cash.
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CURRENT TREND
Bad loan growth in Indian banks this year has been over thrice the average growth inthe preceding five years. While most bad loans are in retail, priority sector and
infrastructure, RBI is worried about the power sector, which is going through a high
level of stress.
RBI on Thursday released its Financial Stability Report, which assess the ability of
the financial sector to survive various types of stress. The stress test results show that
bad loans will reduce bank profits and may also force some of them to raise capital.
Besides rising bad loans, the financial system could come under stress because of a
falling rupee and fleeing foreign investors.
RBI's stress test shows that if bad loans were to increase 150%, 20 banks representing
46% of bank lending in India would be forced to seek capital support as their core
capital adequacy would fall below the prescribed 6%. Considering that gross non-
performing assets of banks were at 2.01% in March 2011, a 150% increase would
translate to a gross NPA ratio of 5.02%.
An increase in the NPA of a bank suggests that there is a high probability of a large
number of credit defaults. This in turn affects the net-worth of the bank and also
erodes the value of the bank‟s asset. Historical evidence suggest that most bank
failures are directly associated with poor management of credit risk.
Banks will be allowed to take property seized from defaulting borrowers onto their
own books or in effect „buy‟ the asset they isolate, thus reducing their non performing
loans, according to a revised securitization law i.e. SARFAESI law awaiting
parliamentary sanction.
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LITERATURE REVIEW
1) Risk Management In BanksBy R.S. Raghavan
CA
Risk is inherent in any walk of life in general and in financial sectors in
particular. Till recently, due to regulate environment, banks could not
afford to take risks. But of late, banks are exposed to same competition
and hence are compelled to encounter various types of financial and non-
financial risks. Risks and uncertainties form an integral part of banking
which by nature entails taking risks. There are three main categories of
risks; Credit Risk, Market Risk & Operational Risk. Author has discussed
in detail. Main features of these risk as well as some other categories of
risks such as Regulatory Risk and Environmental Risk. Various tools and
techniques to manage Credit Risk, Market Risk and Operational Risk and
its various component, are also discussed in detail. Another has also
mentioned relevant points of Basel’s New Capital Accord’ and role of
capital adequacy, Risk Aggregation & Capital Allocation and Risk Based
Supervision (RBS), in managing risks in banking sector.
2) FOREIGN EXCHANGE RISK MANAGEMENT PRACTICES -
A STUDY IN INDIAN SCENARIO
Sathya Swaroop Debasish
Department of Business Management
By Fakir Mohan University
Vyasa Vihar, Balasore - 756019
Orissa, INDIA
Indian economy in the post-liberalization era has witnessed increasing
awareness of the need for introduction of various risk management
products to enable Hedging against market risk in a cost effective way. This
industry-wide, cross Sectional study concentrates on recent foreign
exchange risk management practices and derivatives product usage by
large non-banking Indian-based firms. The study is exploratory in nature
and aims at an understanding the risk appetite and FERM (Foreign
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Exchange Risk Management) practices of Indian corporate enterprises. This
study focuses on the activity of end-users of financial derivatives and is
confined to 501 non-banking corporate enterprises. A combination of
simple random and judgment sampling was used for selecting the
corporate enterprises and the major statistical tools used were Correlation
and Factor analysis. The study finds wide usage of derivative products forrisk management and the prime reason of hedging is reduction in volatility
of cash flows. VAR (Value-at-Risk) technique was found to be the preferred
method of risk evaluation by maximum number of Indian corporate.
Further, in terms of the external techniques for risk hedging, the preference
is mostly in favor of forward contracts, followed by swaps and cross-
currency options This article throws light on various concerns of Indian
firms regarding derivative usage and reasons for non-usage, apart form
techniques of risk hedging, risk evaluation methods adopted, risk
management policy and types of derivatives used.
3) Selecting a Suitable Currency Options Hedging: Strategy for
Managing Foreign Exchange Risk
By CA. Gurvinder S. Gandhi
Manager Finance,
Canon India Pvt. Ltd., Gurgaon.
“Currency options” are derivative instruments that give the buyer of thisoption the right but not the obligation to execute a specified transaction in the
underlying currency pair. It gives the buyer the flexibility to execute
settlement of option or not. This article focuses on the dynamics of hedging
foreign exchange risk through currency options applications. The Currency
options are one of the best tool available to hedge foreign exchange exposures
in various foreign exchange market conditions, like volatile, stagnant, bullish,
bearish.
4) Exchange Rate Risk Measurement and Management:
Issues and approaches for firms
By Michael G. Papaioannou, Ph.D.
International monetary fund
Measuring and managing exchange rate risk exposure is important for
reducing a firm’s vulnerabilities from major exchange rate movements,
which could adversely aff ect profit margins and the value of assets. Thispaper reviews the traditional types of exchange rate risk faced by firms,
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namely transaction, translation and economic risks, presents the VAR
approach as the currently predominant method of measuring a firm’s
exchange rate risk exposure, and examines the main advantages and
disadvantages of various exchange rate risk management strategies,
including tactical vs. strategically and passive vs. active hedging. In
addition, it outlines a set of widely-accepted best practices in managingcurrency risk and presents some of the main hedging instruments in the
OTC and exchange-traded markets. The paper also provides some data on
the use of financial derivatives instruments, and hedging practices by US
firms.
5) Corporate Hedging for Foreign Exchange Risk in India
By Anuradha Sivakumar and Runa Sarkar
Industrial and Management Engineering Department
Indian Institute of Technology, Kanpur
Kanpur, India-208016
Derivative use for hedging is only to increase due to the increased global
linkages and volatile exchange rates. Firms need to look at instituting a sound
risk management system and also need to formulate their hedging strategy
that suits their specific firm characteristics and exposures.
In India, regulation has been steadily eased and turnover and liquidity in the
foreign currency derivative markets has increased, although the use is mainly
in shorter maturity contracts of one year or less. Forward and option
contracts are the more popular instruments. Regulators had initially only
allowed certain banks to deal in this market however now corporates can
also write option contracts. There are many variants of these derivatives
which investment banks across the world specialize in, and as the awareness
and demand for these variants increases,
RBI would have to revise regulations. For now, Indian companies are activelyhedging their foreign exchanges risks with forwards, currency and interest
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rate swaps and different types of options such as call, put, cross currency and
range-barrier options. The high use of forward contracts by Indian firms also
highlights the absence of a rupee futures exchange in India. However, the
Dubai Gold and Commodities Exchange in June, 2007 introduced Rupee-
Dollar futures that could be traded on its exchanges and had provided
another route for firms to hedge on a transparent basis. There are fears that RBI’s abilit y to control the partially convertible currency will be subdued by
this introduction but this issue is beyond the scope of this study. The partial
convertibility of the Rupee will be difficult to control if many exchanges offer
such instruments and that will be factor to consider for the RBI.
The Committee on Fuller Capital Account Convertibility had recommended that
currency futures might be introduced subject to risks being contained through
proper trading mechanism, structure of contracts and regulatory environment.
Accordingly, Reserve Bank of India in the Annual Policy Statement for the Year
2007-08 proposed to set up a Working Group on Currency Futures to study the
international experience and suggest a suitable framework to implement theproposal, in line with the current legal and regulatory framework.
6) Default Recovery Rates and LGD in Credit Risk Modeling and
Practice
By Edward I. Altman
Evidence from many countries in recent years suggests that collateral values andrecovery rates on corporate defaults can be volatile and, moreover, that they tend
to go down just when the number of defaults goes up in economic downturns.
This link between recovery rates and default rates has traditionally been neglected
by credit risk models, as most of them focused on default risk and adopted static
loss assumptions, treating the recovery rate either as a constant parameter or as a
stochastic variable independent from the probability of default. This traditional
focus on default analysis has been partly reversed by the recent significant
increase in the number of studies dedicated to the subject of recovery rate
estimation and the relationship between default and recovery rates. This paper
presents a detailed review of the way credit risk models; developed during the last
thirty years, treat the recovery rate and, more specifically, its relationship with theprobability of default of an obligor. We also review the efforts by rating agencies
to formally incorporate recovery ratings into their assessment of corporate loan
and bond credit risk and the recent efforts by the Basel Committee on Banking
Supervision to consider “downturn LGD” in their suggested requirements under
Basel II. Recent empirical evidence concerning these issues and the latest data on
high-yield bond and leverage loan defaults is also presented and discussed.
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7) MULTI-COUNTRY STUDY OF BANK CREDIT RISK
DETERMINANTS
By Nor Hayati Ahmad and Mohamed Ariff University Utara Malaysia
and Bond University, Australia
This paper presents fresh findings about key determinants of credit risk of
commercial banks in emerging economy banking systems compared with
developed economies. Australia, France, Japan and the US represent developed
economies; emerging economies are India, Korea, Malaysia, Mexico and Thailand.
Credit risk theories and empirical literature suggest eight credit risk determinants.
We find anywhere from two to four factors are alone significantly correlated with
credit risk of any one banking system. Regulatory capital is significant for
banking systems that offer multi products; management quality is critical in the
cases of loan-dominant banks in emerging economies. Contrary to theory orstudies, we find leverage is not correlated with credit risk in our test period. Data
transformations and statistical corrections ensured these results are reliable: Model
robustness was tested using AIC. The model developed here could be applied to
test more emerging economy banking systems to generalize our findings to other
economies.
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RESEARCH METHODOLOGY
Data collection:
The data is collected from Reserve Bank Of India website i.e. www.rbi.org.in. Data is
regarding nonperforming assets and total loans and advances of public sector bank of
India from period 2006-2010.
Data Analysis:
We have calculated Gross NPA ratio of each public sector bank by using the formula
Gross NPA ratio = (Gross NPA/total advances)*100
Thus we have made graphs for each year by taking NPA ratio on y-axis.
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Non-Performing assets of PSU Banks for 2006-2010.
NAME OF THE BANK 2006 2007 2008 2009 2010
Allahabad Bank 1,183.83 1,093.60 1,009.23 1,077 1,221Andhra Bank 436.9 397.01 372.43 368 488
Bank of Baroda 2,263.83 1,972.40 1,858.11 1,664 2,196
Bank of India 2,219.28 1,930.51 1,782.80 2,190 4,481
Bank of Maharashtra 944.08 820.28 766.27 798 1,210
Canara Bank 1,784.21 1,487.19 1,391.47 2,139 2,505
Central Bank of India 2,684.18 2,571.98 2,349.84 2,320 2,458
Corporation Bank 625.57 624.57 584.42 559 651
Dena Bank 949.4 744.48 572.6 621 642
Indian Bank 650.47 532.21 473.31 426 459
Indian Overseas Bank 1,198.12 1,044.85 915.59 1,810 3,442Oriental Bank of
Commerce
2,116.31 1,454.05 1,280.10 1,058 1,469
Punjab and Sind Bank 941.5 290.84 135.53 161 206
Punjab National Bank 3,138.29 3,390.72 3,319.30 2,767 3,214
Syndicate Bank 1,500.20 1,553.05 1,759.66 1,592 2,005
UCO Bank 1,227.70 1,504.02 1,651.95 1,540 1,665
Union Bank of India 2,098.05 1,872.62 1,656.60 1,923 2,664
United Bank of India 744.3 816.92 760.73 1,020 1,372
Vijaya Bank 540.15 564.31 511.5 699 994
IDBI Bank Ltd. 938.48 1,380.62 1,376.68 1,436 2,129
State Bank of Bikaner and
Jaipur
10,269.52 463.03 437.31 490 612
State Bank of Hyderabad 388.73 350.83 311.94 486 646
State Bank of India 453.06 9,871.01 12,576.08 15,105 17,836
State Bank of Indore 362.93 294.21 265.39 301 493
State Bank of Mysore 398.13 383.77 359 368 595
State Bank of Patiala 542.95 524.41 520.94 574 1,007
State Bank of Travancore 609.95 540.11 570.83 549 642
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Total Advances of PSU Banks for 2006-2010.
NAME OF THE BANK 2006 2007.00 2008.00 2009.00 2010.00
Allahabad Bank 20410.86 28041.03 38816.54 53850.00 67833.33
Andhra Bank 17476.00 20895.26 26602.14 33454.55 61000.00
Bank of Baroda 31011.37 50574.36 74324.40 92444.44 168923.08
Bank of India 40350.55 52175.95 74283.33 128823.53 263588.24
Bank of Maharashtra 13486.86 14914.18 21893.43 30692.31 52608.70
Canara Bank 45748.97 64660.43 92764.67 178250.00 156562.50
Central Bank of India 28254.53 37275.07 48955.00 72500.00 91037.04
Corporation Bank 18399.12 24021.92 27829.52 37266.67 59181.82
Dena Bank 9787.63 11632.50 13965.85 25875.00 30571.43Indian Bank 15487.38 18352.07 24911.05 35500.00 51000.00
Indian Overseas Bank 22606.04 30730.88 39808.26 113125.00 137680.00
Oriental Bank of
Commerce
23256.15 24234.17 40003.13 46000.00 97933.33
Punjab and Sind Bank 5473.84 3029.58 5647.08 23000.00 29428.57
Punjab National Bank 52304.83 82700.49 94837.14 102481.48 178555.56
Syndicate Bank 28850.00 38826.25 58655.33 58962.96 105526.32
UCO Bank 24554.00 39579.47 56963.79 70000.00 83250.00
Union Bank of India 41961.00 49279.47 57124.14 87409.09 133200.00
United Bank of India 12201.64 17381.28 21131.39 37777.78 47310.34Vijaya Bank 18625.86 17634.69 22239.13 43687.50 52315.79
IDBI Bank Ltd. 32361.38 69031.00 72456.84 75578.95 152071.43
State Bank of Bikaner
and Jaipur
311197.58 19292.92 19877.73 28823.53 38250.00
State Bank of Hyderabad 11106.57 16706.19 25995.00 54000.00 58727.27
State Bank of India 7551.00 274194.72 433657.93 503500.00 637000.00
State Bank of Indore 10997.88 9807.00 13967.89 21500.00 35214.29
State Bank of Mysore 9710.49 15990.42 19944.44 26285.71 45769.23
State Bank of Patiala 20109.26 27600.53 47358.18 41000.00 #VALUE!
State Bank of Travancore
14184.88 16878.44 25946.82 27450.00 37764.71
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NPA ratio for PSU banks
NAME OF THE BANK 2006 2007 2008 2009 2010
Allahabad Bank 5.80 3.90 2.60 2.00 1.80
Andhra Bank 2.5 1.9 1.4 1.1 0.8
Bank of Baroda 7.30 3.90 2.50 1.80 1.30
Bank of India 5.50 3.70 2.40 1.70 1.70
Bank of Maharashtra 7.00 5.5 3.50 2.6 2.30
Canara Bank 3.90 2.30 1.50 1.20 1.60
Central Bank of India 9.50 6.90 4.80 3.20 2.70
Corporation Bank 3.40 2.6 2.1 1.5 1.1
Dena Bank 9.70 6.4 4.1 2.4 2.1Indian Bank 4.20 2.9 1.9 1.2 0.9
Indian Overseas Bank 5.30 3.4 2.30 1.6 2.5
Oriental Bank of
Commerce
9.10 6.00 3.20 2.30 1.50
Punjab and Sind Bank 17.20 9.6 2.40 0.7 0.70
Punjab National Bank 6.00 4.10 3.50 2.70 1.80
Syndicate Bank 5.20 4 3 2.7 1.9
UCO Bank 5.00 3.80 2.90 2.20 2.00
Union Bank of India 5.00 3.80 2.90 2.20 2.00
United Bank of India 6.10 4.7 3.6 2.7 2.9Vijaya Bank 2.90 3.2 2.3 1.6 1.9
IDBI Bank Ltd. 2.90 2.00 1.90 1.90 1
State Bank of Bikaner and
Jaipur
3.30 2.4 2.2 1.7 1.6
State Bank of Hyderabad 3.50 2.1 1.20 0.9 1.10
State Bank of India 6.00 3.60 2.90 3.00 2.80
State Bank of Indore 3.30 3 1.9 1.4 1.4
State Bank of Mysore 4.10 2.4 1.80 1.4 1.30
State Bank of Patiala 2.70 1.9 1.10 1.4 _
State Bank of Travancore 4.30 3.2 2.20 2 1.70
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0.002.004.006.008.00
10.0012.0014.00
16.0018.0020.00
A l l a h a b a d B a n k
A n d h r a B a n k
B a n k o f B a r o d a
B a n k o f I n d i a
B a n k o f M a h a r a s h t r a
C a n a r a B a n k
C e n t
r a l B a n k o f I n d i a
C
o r p o r a t i o n B a n k
D e n a B a n k
I n d i a n B a n k
I n d i a
n O v e r s e a s B a n k
O r i e n t a l B a n k o f …
P u n j a
b a n d S i n d B a n k
P u n j a b N a t i o n a l B a n k
S y n d i c a t e B a n k
U C O B a n k
U n i o n B a n k o f I n d i a
U n i t e d B a n k o f I n d i a
V i j a y a B a n k
I D B I B a n k L t d .
S t a t e
B a n k o f B i k a n e r …
S t a t e B a
n k o f H y d e r a b a d
S t a t e B a n k o f I n d i a
S t a t
e B a n k o f I n d o r e
S t a t e
B a n k o f M y s o r e
S t a t
e B a n k o f P a t i a l a
S t a t e B a n k o f …
NPA Ratio of 2006
NPA Ratio of 2006
0.00
2.00
4.00
6.00
8.00
10.00
12.00
A
l l a h a b a d B a n k
A
n d h r a B a n k
B
a n k o f B a r o d a
B a n k o f I n d i a
B a n k o
f M a h a r a s h t r a
C a n a r a B a n k
C e n t r a
l B a n k o f I n d i a
C o r
p o r a t i o n B a n k
D e n a B a n k
I n d i a n B a n k
I n d i a n O v e r s e a s B a n k
O r i e n t a l B a n k o f …
P u n j a b
a n d S i n d B a n k
P u n j a b N
a t i o n a l B a n k
S
y n d i c a t e B a n k
U C O B a n k
U n i o n
B a n k o f I n d i a
U n i t e d
B a n k o f I n d i a
V i j a y a B a n k
I D B I B a n k L t d .
S t a t e B
a n k o f B i k a n e r …
S t a t e B a n k
o f H y d e r a b a d
S t a t e B a n k o f I n d i a
S t a t e B a n k o f I n d o r e
S t a t e B
a n k o f M y s o r e
S t a t e B a n k o f P a t i a l a
S t a t e B a n k o f …
NPA of 2007
NPA of 2007
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0.00
1.00
2.00
3.004.00
5.00
6.00
A l l a h a b a d B a n k
A n d h r a B a n k
B a n k o f B a r o d a
B a n k o f I n d i a
B a n
k o f M a h a r a s h t r a
C a n a r a B a n k
C e n
t r a l B a n k o f I n d i a
C o r p o r a t i o n B a n k
D e n a B a n k
I n d i a n B a n k
I n d i a n O v e r s e a s B a n k
O r i e n t a l B a n k o f …
P u n j a b a n d S i n d B a n k
P u n j a
b N a t i o n a l B a n k
S y n d i c a t e B a n k
U C O B a n k
U n
i o n B a n k o f I n d i a
U n i t e d B a n k o f I n d i a
V i j a y a B a n k
I D B I B a n k L t d .
S t a t e B a n k o f B i k a n e r …
S t a t e B a n k o f …
S t a t e B a n k o f I n d i a
S t a
t e B a n k o f I n d o r e
S t a t
e B a n k o f M y s o r e
S t a
t e B a n k o f P a t i a l a
S t a t e B a n k o f …
NPA RATIO of 2008
NPA RATIO of 2008
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
A l l a h a b a d B a n k
A n d h r a
B a n k
B a n k o f B a r o d a
B a n k
o f I n d i a
B a n k o f M a h a r a s h t r a
C a n a
r a B a n k
C e n t r a l B a n k
o f I n d i a
C o r p o r a t i o n B a n k
D e n a B a n k
I n d i a n B a n k
I n d i a n O v e r s e
a s B a n k
O r i e n t a l B a n k o f C o m m e r c e
P u n j a b a n d S i n d B a n k
P u n j a b N a t i o n a l B a n k
S y n d i c a
t e B a n k
U C O B a n k
U n i o n B a n k
o f I n d i a
U n i t e d B a n k
o f I n d i a
V i j a
y a B a n k
I D B I B a n k L t d .
S t a t e B a n k o f B i k a
n e r a n d …
S t a t e B a n k o f H y d e r a b a d
S t a t e B a n k
o f I n d i a
S t a t e B a n k o
f I n d o r e
S t a t e B a n k o f
M y s o r e
S t a t e B a n k o f P a t i a l a
S t a t e B a n k o f T r a v a n c o r e
NPA RATIO of 2009
NPA RATIO of 2009
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FINDINGS
The NPA ratio 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 that the
Punjab and Sind Bank has the higher gross NPA ratio of 9.7% followed by Dena
Bank with 9.1% in 2006 and 2007.In 2008 Central Bank of India has the highest NPA
ratio as depicted by graph. Thus it shows that the credit risk of banks stated above was
high due to high volume of non performing assets.it is also depicted that the NPA
ratio of Andhra Bank and Canara Bank was low during 2006-2009which shows that at
that time they were having high credit portfolio. But in 2010 they also show highNPA ratio. Thus their credit portfolio came down in 2010.
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
A l l a
h a b a d B a n k
A n d
h r a B a n k
B a n
k o f B a r o d a
B
a n k o f I n d i a
B a n k o f M
a h a r a s h t r a
C
a n a r a B a n k
C e n t r a l B
a n k o f I n d i a
C o r p o
r a t i o n B a n k
D e n a B a n k
I n d i a n B a n k
I n d i a n O v
e r s e a s B a n k
O r i e
n t a l B a n k o f …
P u n j a b a n
d S i n d B a n k
P u n j a b N a t i o n a l B a n k
S y n
d i c a t e B a n k
U C O B a n k
U n i o n B
a n k o f I n d i a
U n i t e d B
a n k o f I n d i a
V i j a y a B a n k
I D B I B a n k L t d .
S t a t e B a n k o f B i k a n e r a n d …
S t a t e B a n k o f H y d e r a b a d
S t a t e B
a n k o f I n d i a
S t a t e B a n k o f I n d o r e
S t a t e B a n
k o f M y s o r e
S t a t e B a n k o f P a t i a l a
S t a t e B a n k o f
T r a v a n c o r e
NPA RATIO of 2010
NPA RATIO of 2010
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LIMITATIONS
The major limitation was data availability. We have taken data for public
sector banks only as data for private sector banks was not available. Thus
research is limited to public sector banks only.
The time period was limited to only 5 years i.e. from 2006-2010.
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CONCLUSION
India as an emerging economy has withstood the recent global financial meltdown
and posted a decent GDP growth when many major economies were in recession.
This is mainly due to the robust macroeconomic policies of the government and the
prudent financial policies and regulations implemented in a timely manner by the
regulatory body the Reserve Bank of India (RBI). The public and private sector banks
have been managing the credit risk effectively during the past decade. Although the
NPA level had decreased from the all time high in the 1990s to all time low in 2008,
the gradual increase of the NPA during the past two years is posing concern for many
analysts. Since the lagged NPA is the major contributing factor for the current NPA,
the commercial banks must have prudent credit policies to avert any ill affect of the
credit risk. The GDP growth in the Indian economy is helping the banking sector in
having their Non-Performing loans at an acceptable level. Since most studies predict a
two year lag period between the boom in credit growth and the growth in NPA, the
banking sector must be vigilant in managing the NPAs in the coming years.
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REFERENCES
http://www.eurojournals.com/finance.htm
www.rbi.org.in
Banking Annual (October 2003) published by business standard.