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A critical review of non-performing assets in the Indian banking industry

Rajagiri Management Journal

ISSN : 0972-9968

Article publication date: 28 November 2019

Issue publication date: 13 December 2019

The level of non-performing assets (NPAs) best indicates the soundness of the banking sector of a country. The purpose of this study is an effort to look into the contribution of the different banks individually to the NPA in the industry by looking into its growth pattern during the period 2010-2017. Further, the study is made to look into the effect of different groups of banks, namely, State Bank of India (SBI) and its associates, nationalised banks and private sector banks on the banking industry in this regard.

Design/methodology/approach

The individual private sector banks, nationalised banks and SBI and its associates have been considered for the purpose of the study. The analysis is based on secondary data collected from the Reserve Bank of India website for the period 2010-2017. The geometric mean has been used as a statistical tool for arriving at the mean growth rate of gross NPAs. Further, refinement of the result is done by comparing the growth of gross NPAs of individual banks with that of the average growth rate.

The assessment of private sector banks reveals that the growth rate of NPAs is low as compared to the nationalised banks, as well as the SBI and its associates. The nationalised banks and the associate banks of SBI failed to handle the issue of poor loans effectively due to which the growth in such loans has been phenomenally high.

Originality/value

The research is interesting as the study period follows the financial crisis. There is no such previous study that has looked at the perspective of banking from this angle. The research is valuable from two angles. Firstly, it brings to light the situation of the different categories of banks with regard to NPAs. Secondly, the information can be useful for investors as the issue of poor loans is a relevant one for them because it has an impact on the profitability of banks and thereby the future prospects.

• Nationalized banks
• Non-performing assets
• Private sector banks
• SBI and its associates

Agarwala, V. and Agarwala, N. (2019), "A critical review of non-performing assets in the Indian banking industry", Rajagiri Management Journal , Vol. 13 No. 2, pp. 12-23. https://doi.org/10.1108/RAMJ-08-2019-0010

Emerald Publishing Limited

Copyright © 2019, Varuna Agarwala and Nidhi Agarwala.

Published in Rajagiri Management Journal . Published by Emerald Publishing Limited. This article is published under the Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this licence may be seen at http://creativecommons.org/licences/by/4.0/legalcode

1. Introduction

The banking sector is a keystone of any financial system. The smooth functioning of the banking sector ensures the healthy condition of an entire economy. In the process of accepting deposits and lending, loans banks create credit. The funds received from the borrowers by way of interest on loan and repayments of principal are recycled for raising resources. However, building up of non-performing assets (NPAs) disrupts this flow of credit. It hampers credit growth and affects the profitability of the banks as well. NPAs are the leading indicators to judge the performance of the banking sector. As per Reserve Bank of India (RBI) reports on November 2018, the gross amount of poor quality loans is in excess of Rs 9 lakh crores, which shows the severe impact it has on lending practices of banks and their liquidity positions. This growth is a result of quadrupling during the past five years, which shows the poor practice of banks with regard to lending.

sub-standard asset : If an asset has been non-performing for less than 12 months;

doubtful asset : If an asset has been non-performing for more than 12 months; and

loss assets : Assets where losses have been identified by the bank, auditor or inspector and have not been fully written off.

The generation of poor loans in the books of banks is not a favourable event for the banking industry as it affects the size and soundness of the balance sheet. There is an unfavourable impact on the level of return on assets as well. Large amount of profits have to be provisioned against the doubtful and bad loans, which reduces profitability. Banks are even burdened with the increasing level of carrying costs of NPA accounts, which could have been used for any other profitable purpose. The financial institutions are also desired to maintain a certain capital adequacy level to strengthen their net worth. Though this issue is bad news for the banking industry, in recent times from the newspaper reports, it is evident that this problem has taken a serious toll on the banking space. The RBI has been taking measures to control the NPA menace. Some legal measures such as debt recovery tribunals (DRTs), Lok Adalats, the SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) Act and the Insolvency and Bankruptcy Code, 2016 have been introduced for the resolution of NPAs. Recapitalisation of public sector banks, setting up of stressed asset management verticals are some other steps taken by the RBI. In recent years, a few concepts like special mention accounts (SMA) and creating categories such as SMA 0, SMA 1 and SMA 2 have been added. Moreover, the regulator has also imposed restriction on eleven public sector banks by imposing the prompt corrective action (PCA) on them. Because of these developments, the present paper aims to find out which banks have contributed to the growing menace and what has been the trend in the banking industry with regard to these poor quality loans.

2. Literature review

The issue of NPAs has been a major area of concern for the lenders and the policymakers. Various research studies have been made to understand the causes contributing to the rise in NPAs, measures that should be taken to resolve the issue in its nascent stage and reforms that have come into effect to reduce the piling up of NPAs. Some of the relevant studies are arranged in a chronological sequence. Karunakar et al. (2008) discuss the various factors that boost NPAs, their size, their effect on Indian banking operations and suggest measures to control the curse on the banking industry. Use of suitable credit assessment and risk management methods is the key to solve the problem of NPA accumulation. Rajeev and Mahesh (2010) , in their article deal with the issue of NPAs after the global financial crisis. They suggest that mere recognition of the problem and self-monitoring can help to manage the NPA problem to a great extent. Self-help groups can also play an important role in the recovery of the loans. Barge (2012) examines that early monitoring and management of lent funds is the necessity of the hour. The study suggests several measures like better supervision of end use of funds, information about the credit history of the borrower and assisting the borrowers to develop entrepreneurial skills to ensure that the asset does not convert into a non-performing asset. Gupta (2012) makes a comparative study of the position of NPAs of State Bank of India (SBI) and associates and other public sector banks. The researcher concludes that for evaluation of the solvency of borrowers each bank should set up a separate credit rating agency. It also suggests the need for a committee comprising of financial experts to supervise and monitor the issue of NPAs. Shalini (2013) has analysed the causes and suggested remedies for reducing NPAs in Indian public sector banks with special reference to the agricultural sector. The analysis of the different problems faced by the Indian farmers deduces the conclusion that banks should follow some measures before lending the loan. Prior collection of reports regarding the goodwill of the farmers, post sanction inspection, educating the farmers regarding the effects and consequences of defaulting are some of the suggested measures. Singh (2013) in the investigation on the position of Indian commercial banks with regard to NPAs finds that these poor quality loans are a major problem for the public sector banks, which show a consistent rise over the years. The main contribution comes from the loans directed at the micro sector and for poverty alleviation programmes. Bhaskaran et al. (2016) in their paper have compared the NPAs of public sector banks and private sector banks over a period of ten years (2004-2013). From their study, it is evident that private sector banks are performing better than public sector banks in reducing the level of NPAs. The authors propose that banks should be proactive in adopting structured NPAs management policy where prevention of NPAs receive priority. Thomas and Vyas (2016) in a recent study on loan recovery strategy of Indian banks suggests two measures, preventive and corrective. The paper also discusses several corrective measures – legal, regulatory and non-legal that are to be taken to recover the non-performing loans. Singh (2016) in another recent study on NPAs and recovery status find that the problem is more severe for the public sector banks compared to the private sector banks. The academic review points to the need to have strict lending policies for speedy recovery of loans. Meher (2017) in the post-demonetisation period looks into the impact of the government’s notebandi decision on the NPA of Indian Banks. The researcher finds both positives and negatives of the event on the banking industry. Sengupta and Vardhan (2017) have compared the two banking crisis episodes post-liberalisation- one that took place in the late 1990s and the other that commenced after the 2008 global financial crisis that raised the issue of NPAs. The authors are of the view that strong governance, proactive banking regulations and a strong legal framework for resolution of NPAs would assist in solving the problem of NPAs. On the other hand, regulatory forbearance would adversely affect the banking crisis. Mittal and Suneja (2017) have analysed the level of NPAs in the banking sector in India and the causes that have led to the rise in NPAs. They have proposed that though the government has taken a number of steps to reduce the problem of NPAs, bankers should also be proactive in adopting well-structured policies to manage NPAs. The loan should be sanctioned after considering the return on investment of a proposed project and the credit-worthiness of the customers. Sahni and Seth (2017) study the different causes responsible for rising NPAs and the impact it has on the operation of banks. The authors have mentioned several preventive and curative measures to control the NPAs. They have suggested that proper assessment regarding the credit-worthiness of the borrower should be done to ensure the speedy recovery of loans. Mishra and Pawaskar (2017) have recommended that banks should have a good credit appraisal system so as to avoid NPAs. They point out that the problem of NPAs can be solved if there is a proper legal structure to support the banks in recovery of debt. Banerjee et al. (2018) have examined the status of gross NPAs and net NPAs in private sector banks and public sector banks to study their effect on the asset quality of the banks. Deliberate loan defaults, poor credit management policies, sanctioning of loans without analysing the risk-bearing capacity of the borrowers are the main reasons for piling up of NPAs. The banks should stress on better strategy formulation and its proper execution as well. Stringent provisions by the government could help in reducing the level of NPAs. Mukhopadhyay (2018) , in his paper, has discussed about finding solutions to India’s NPA woes. He has suggested that to resolve the problems of NPAs the RBI should not abide by a single model, instead, an innovative and flexible approach is needed for each affected bank, which should differ on case-by-case basis. Kumar (2018) , in her study has found that NPAs have a serious negative impact on the profitability and liquidity of the banking sector. According to her if the issue of NPAs is managed efficiently, then many microeconomic issues such as poverty, unemployment, imbalances of balance of payments can be reduced, the money market can be strengthened, and thus, the image of Indian banking system can be improved in the international market. Sharma (2018) emphasises the role of the banking sector as an instrument of economic growth and development. The paper discusses how banks are burdened due to growing NPAs especially in case of public sector banks. The author states a number of preventive measures that would curtail the level of NPAs. Viable regulatory standards and timely implementation of them could pave the way for a strong financial sector in India. Dey (2018) in a very recent research paper looks at the recovery aspect of recovery of poor loans of the Indian commercial banks. The author finds the role of DRTs to be much better compared to the recovery through Lok Adalats and SARFASEI Act. Kumar et al. (2018) make an interesting study to find out the main reasons behind accumulating NPAs. They find the main reasons to be industrial sickness, change in government policies, poor credit appraisal system, wilful defaults and defect in the lending process.

2.1 Research gap

Thus, an overview of the above literature shows that there are quite a few studies in the field of non-performing assets in the banking industry. However, there are no studies that look at the data till 2017, which is important and pertinent because the major piling up has been taking place after 2011 in the aftermath of the financial crisis of 2008. Moreover, the major focus of the paper is not only on groups of banks but also individual banks. This is done to identify those banks, which have been contributing more to the NPA menace in the banking space. Hence, the article is not only relevant but also addresses a contemporary issue like NPAs. The research adds new knowledge to the banking literature, which will help readers to comprehend the position of banks in a better way.

3. Objectives of the study

to determine the mean growth rate for different groups of banks and individual banks; and

to make comments relating to the growth pattern of Gross NPAs.

4. Research design

Sample : the individual private sector banks, the nationalised banks and SBI and its associates have been considered.

Data period : the analysis is based on data for the period 2010-2017.

Nature of the data and source : The investigation is based on secondary data, which is collected from the RBI website.

Variable of interest : gross NPAs.

Research methods : in this article, the statistical tool that the researchers have used is the geometric mean for arriving at the mean growth rate and then the growth of individual banks has been compared with the average growth rate.

5. Analysis and findings

The details of the analysis are presented in the sub-section below.

5.1 Assessment of private sector banks

The position of the private sector banks with regard to the movement of gross NPAs during the study period is discussed below.

5.1.1 Assessment at the individual level.

An examination of the gross NPA position of the banks in the private sector shows that the growth rate (calculated using Geometric Mean) is quite low in the initial years of the study period (the lowest being 3 per cent in the year 2011-2012), but it goes on increasing thereafter. The overall position of NPAs of the private sector goes up to a maximum of 72 per cent in the year 2016-2017. Majority of the private sector banks show a sharp rise in the NPA growth rates after the year 2015-2016. This sudden rise may have been the result of “asset quality review” conducted by the RBI in the year 2015. The inspection carried out by the RBI highlighted the under-reporting of NPAs in the private sector banks. Big lenders like Axis Bank, Yes Bank and ICICI Bank reveal high growth rate of NPAs during the latter years of the study period. Axis Bank experienced a significant rise in the gross NPAs of close to 250 per cent in 2016-2017 followed by Karur Vysya Bank (190 per cent) and Yes Bank (170 per cent) ( Table I ).

5.1.2 Comparing performance against the mean.

If we consider the growth rates of NPAs of each private sector bank with respect to the average growth rate of the banks in the private sector as a whole, we find that most of the banks have a growth rate less than the average growth rate (27 per cent). The performance of DCB is a commendable one as it shows an overall decline in the level of poor loans, which is an exception in the banking landscape. It points to a sound NPA management process in the bank. On the other hand, Yes Bank, which is among the big brands in the industry recorded the highest growth rate of 65 per cent followed by Axis Bank (49 per cent) ( Table II ).

5.2 Performance assessment of SBI and its associates

5.2.1 assessment at the individual level..

Next, we analyse the position of SBI and the SBI Group as a whole (note that the SBI Associates do not separately exist now as they have been merged with SBI in 2017). An analysis of the gross NPA position shows that the initial spurt in NPA growth took place in 2011-2012 followed by 2015-2016. This observation is the same as what is seen in the case of the nationalised banks. Of the entire SBI Group the State Bank shows the minimum average growth of 28 per cent. The associate banks show a poor performance in terms of the overall rise in NPAs during the period. Calculations show that State Bank of Hyderabad shows a growth of 61 per cent, which is closely followed by State Bank of Patiala (51 per cent), State Bank of Bikaner and Jaipur (50 per cent), State Bank of Mysore (49 per cent) and State Bank of Travancore (45 per cent). It is evident from the computations that with the SBI giving more focus towards NPA management rather than business expansion, fruitful results are reflected in 2016-2017 with respect to the previous year, a rise of only 14 per cent. For the remaining associate banks, it seems that the top management has not taken the issue of NPAs very seriously, due to which in 2016-2017 the year on year growth rate exceeds 160 per cent for all the banks. This might be the possible reason apart from generating economies of scale behind mergers of the associate banks with the parent bank ( Table III ).

5.2.2 Comparing performance against the mean.

The table below gives an idea about the growth position in NPAs of the individual banks against the average performance of the group ( Table IV ).

5.3 Performance assessment of nationalised banks

5.3.1 assessment at the individual level..

As per the computation, the position of Gross NPAs with respect to the growth rate during the period 2010-2011 and 2016-2017 is extremely bad, which is the reason behind the growing worry of the apex bank. If we look into specific banks and look at the growth rate during the study period we find the banks, which show the maximum rate are Andhra Bank, Punjab and Sindh Bank and IDBI Bank, which show the mean growth rate (in terms of geometric mean) to be 67, 63 and 55 per cent, respectively. In fact, the overall position of the nationalised banks taken together shows that the growth rate has risen at a high pace after the financial crisis started showing its effect in 2010. Of the 20 nationalised banks, 40 per cent show a mean growth rate of atleast 50 per cent. If we compare the growth rate of banks with respect to the average growth rate of the nationalised banking group taken together, it is evident that 50 per cent of the banks grow at a rate, which is more than the mean rate of 46 per cent. Some of the prominent names include Punjab National Bank, Andhra Bank, IDBI Bank (in which LIC has recently taken a stake of 51 per cent). For those banks in which the NPA rose by less than the average, the geometric mean lies in the range of 30 per cent (for Vijaya Bank) and 46 per cent (for Bank of Maharashtra).

If we analyse the pattern of growth (year-on-year), we find that there has been a spurt in the NPA growth of nationalised banks during 2011-2012 and 2013-2014. The second shock in terms of poor quality norms took place in 2015-2016 when the overall nationalised banks grew 104 per cent over the previous year. After the RBI came up with the concept of prompt corrective action, and looked at the problem with more diligence, some positive results (though not satisfactory) is seen in 2016-2017. It is evident from the calculations that the growth of NPAs in 2016-2017 is 21 per cent, which is the least during the study period ( Table V ).

5.3.2 Performance of banks against average.

The table below shows the categorisation of the banks into two categories, which are “more than average” and “less than average” ( Table VI ).

6. Conclusion

The overall findings point to a worrisome situation for the banking sector as a whole. An analysis of the growth rate in the NPA level shows that the problem is evident not only with small-sized banks but also with big names in the banking space. Hence, the entire sector is gripped in the crisis. The poor asset for the banks is a problem because as per the guidelines, given by the RBI, banks are required to keep some amount as provision depending on their asset quality thereby leading to declining profitability of the banks. Hence, it impacts not only the profitability level of these banks but also affects the shareholders’ wealth. Thus, the time is apt that the RBI has been coming up with very stringent norms so that the growth in these assets can be put under control. The Insolvency and Bankruptcy Code of 2016 is playing an important role with regard to recovery of assets of those creditors whose case has been filed with the National Company Law Tribunal. In fact, figures are given by the RBI point to a declining phase in the NPA growth rate, which is a positive development. But, there is still a lot to be done. Only time will say how successful has the RBI been in controlling the NPA growth in the sector. It is necessary to pull the trigger hard as these poor loans are having a severe impact on the liquidity position of banks and even the banks have been asked to go slow with regard to lending, which is ultimately having an impact on the economic growth, which has been slow during the past few quarters.

Year on year growth rate in gross NPAs in private sector banks

Year	2010-2011 (%)	2011-2012 (%)	2012-2013 (%)	2013-2014 (%)	2014-2015 (%)	2015-2016 (%)	2016-2017 (%)	GM (%)
Axis Bank	21	13	33	31	31	48	250	49
Catholic Syrian Bank Ltd	29	−5	15	58	42	−6	34	22
City Union Bank Limited	20	10	40	69	15	52	33	33
DCB Limited	−17	−8	−11	−36	34	6	29	−3
Dhanlaxmi Bank	−13	55	265	28	15	−18	−31	22
Federal Bank	40	13	19	−30	−3	58	4	11
HDFC Bank	−7	18	17	28	15	28	34	18
ICICI Bank	6	−6	1	9	44	74	61	24
Indusind Bank	4	31	32	36	−9	38	36	22
Jammu and Kashmir Bank Ltd	12	0	25	22	253	58	37	44
Karnataka Bank Ltd	28	−2	−7	31	13	25	34	16
Karur Vysya Bank	−3	41	−11	−2	143	−25	190	30
Kotak Mahindra Bank Ltd	−21	2	23	40	17	129	26	25
Lakshmi Vilas Bank	−51	95	49	19	−17	−14	64	10
Nainital Bank	−8	45	117	−9	27	54	38	32
RBL	−22	54	−22	200	43	87	72	44
South Indian Bank	9	16	62	0	49	143	−26	27
Tamilnadu Mercantile Bank Ltd	23	26	21	100	−26	31	55	28
Yes Bank Ltd	34	4	12	85	79	139	170	65

Computed by the researchers

Growth more than average (27%)	(%)	Growth less than average (27%)	(%)
Yes Bank Ltd	65	South Indian Bank	27
Axis Bank	49	Kotak Mahindra Bank Ltd	25
Jammu and Kashmir Bank Ltd	44	ICICI Bank	24
RBL	44	Catholic Syrian Bank Ltd	22
City Union Bank Limited	33	Dhanlaxmi Bank	22
Nainital Bank	32	Indusind Bank	22
Karur Vysya Bank	30	HDFC Bank	18
Tamilnad Mercantile Bank Ltd	28	Karnataka Bank Ltd	16
		Federal Bank	11
		Lakshmi Vilas Bank	10
		DCB Limited	−3

Computed by the researchers

Year	2010-2011 (%)	2011-2012 (%)	2012-2013 (%)	2013-2014 (%)	2014-2015 (%)	2015-2016 (%)	2016-2017 (%)	GM (%)
State Bank of Bikaner And Jaipur	37	98	28	29	8	22	196	50
State Bank of Hyderabad	77	74	59	83	−14	32	176	61
State Bank of India	30	57	29	20	−8	73	14	28
State Bank of Mysore	45	74	38	35	−24	70	173	49
State Bank of Patiala	37	37	30	53	16	55	164	51
State Bank of Travancore	30	78	18	76	−23	36	176	45

Computed by the researchers

Growth more than average (34%)	(%)	Growth less than average (34%)	(%)
State Bank of Hyderabad	61	State Bank of India	28
State Bank of Patiala	51
State Bank of Bikaner And Jaipur	50
State Bank of Mysore	49
State Bank of Travancore	45

Computed by the researchers

Year	2010-2011 (%)	2011-2012 (%)	2012-2013 (%)	2013-2014 (%)	2014-2015 (%)	2015-2016 (%)	2016-2017 (%)	GM (%)
Allahabad Bank	35	25	149	57	4	84	34	50
Andhra Bank	104	81	107	58	17	66	54	67
Bank of Baroda	31	42	79	49	37	149	5	51
Bank of India	−1	34	44	38	72	125	4	40
Bank of Maharashtra	−3	11	−12	151	124	62	66	46
Canara Bank	21	29	55	21	72	143	8	45
Central Bank of India	−3	204	16	36	3	91	20	41
Corporation Bank	21	61	61	131	50	105	17	59
Dena Bank	31	14	52	80	68	95	47	53
IDBI Bank Ltd	31	63	42	54	27	96	80	55
Indian Bank	45	150	93	28	24	56	12	53
Indian Overseas Bank	−14	27	69	37	65	101	17	38
Oriental Bank of Commerce	31	86	17	34	36	92	55	48
Punjab and Sind Bank	106	80	101	66	21	37	49	63
Punjab National Bank	36	99	54	40	36	117	−1	50
Syndicate Bank	30	22	−6	55	40	115	27	36
UCO Bank	89	30	74	−7	55	104	8	45
Union Bank of India	36	50	16	51	36	85	39	44
United Bank of India	−1	61	36	140	−8	45	16	35
Vijaya Bank	27	36	−11	30	23	147	6	30

Computed by the researchers

Source: Computed by the researchers

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Further reading

Bhardwaj , P. and Chawdhary , I. ( 2018 ), “ A study of non-performing assets of commercial banks and its recovery in India ”, International Journal of Research and Analytical Reviews , Vol. 5 , No. 2 , pp. 176 - 189 .

Vikram , S.K. and Gayathari , G. ( 2018 ), “ A study on non-performing assets in Indian banking sector ”, International Journal of Pure and Applied Mathematics , Vol. 118 , pp. 4537 - 4541 .

www.orfonline.org/research/finding-innovative-solutions-to-indias-npa-woes/

www.google.com/amp/s/m.hindustantimes.com/india-news/rbi-note-shows-worst-of-npa-and-credit-growth-problem-may-be-over/story-oYkiUuayCn3nPBBVHusqOL_amp.html

Acknowledgements

The authors would like to express their deep gratitude to Dr Abhijit Sinha for mentoring and guiding us in the research work and all the other teachers of the Department of Commerce, Vidyasagar University for their support and encouragement.

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A STUDY ON NON-PERFORMING ASSETS OF STATE BANK OF INDIA

" The three letters Strike terror in banking sector and business circle today ". NPA is short form of " Non Performing Asset ". The economic future of the country is wholly dependent on banking sector. The problem of NPA show signs of "persistent bane of hitherto developmental policies". "New stratagem is required to attempt effacing of the NPA menace". The significance of the paper is expected to be an immense use to fulfill consumer needs and facing competition with other banks. This study provides the information related to solve NPA problem. The study uses the annual reports of SBI for the period of year 2007-2008 to 2013-2014. The motive of present study is to assess the non performing assets of SBI and its impact on profitability & to see the relationship between Total Advances, Net Profits, NET & GROSS NPA. The study also includes advances and NPA of SBI groups by Priority & Non Priority sectors. The study has been analyzed by using tables and coefficient of correlation. The major reason of increased NPA is banks focal point on quantitative aspect of achieving targets and less attention being paid towards qualitative aspect of loan and credit disbursement of money & mismanagement of funds. INTRODUCTION NPA is short form of " Non Performing Asset ". We know the built up of NPA has been the major factor in destroying the profitability of the Public sector Banks in India, the Narasimham Committee (II) underscored the need to reduce the average level of NPAs of all banks and recommended prudential norms on income recognition, asset classification & provisioning. The dreaded NPA rule says simply this: when interest or other due to a bank remains unpaid for more than 90 days, the entire bank loan automatically turns a non performing asset [1]. The recovery of loan has always been problem for banks and financial institution [1]. To come out of these first we need to think is it possible to avoid NPA, no cannot be then left is to look after the factor responsible for it and managing those factors [3]. 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, from the year ending March 31, 2004 [3].

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Banking industry plays a significant role in the development of any economy as it caters to the needs for all the sections of the society.The modern economies of the world have developed primarily by making best use of the credit availability in their systems. India is on the march; far reaching socio-economic changes are taking place and Indian banks should come forward to play this role in the process. The role of banks has been important, but it is going to be even more important in the future. In this context giving due importance and consideration for the growth of banking sector is considered to be the need of the hour. Therefore this paper is an attempt to study the importance of both public sector and private sector banks in the development of Indian economy.

The Indian banking sector has been facing serious problems of raising Non-Performing Assets (NPAs). The NPAs growth has a direct impact on profitability of banks. Non-performing assets are one of the major concerns for public sector banks in Pune district. There seems to be no unanimity in the proper policies to be followed in resolving this problem. A high level of NPAs suggests high probability of a large number of credit defaults that affect the profitability and net-worth of banks and also erodes the value of the asset. NPAs affect the liquidity and profitability, in addition to posing threat on quality of asset and survival of banks. The problem of NPAs is not only affecting the banks but also the whole economy. In fact high level of NPAs in Indian banks is nothing but a reflection of the state of health of the industry and trade. It is necessary to trim down NPAs to improve the financial health in the banking system. An attempt is made in this paper to understand NPA, the status and trend of NPAs on public sector banks in Pune district. Keywords: NPA's, public sectors banks, Indian economy and recovery of NPA's etc.

Private Sector Banks (PSBs) in India have performed rather poorly over the past 3-4 years. For the most part this has been on account of Non Performing Asset (NPA) related worries which have so far been brushed under the carpet. The current level of NPAs as disclosed by most private sector banks is far from reality and made possible because of the flexibility enjoyed by PSBs in terms of disclosure requirements .A healthy and a sound banking system are very essential for an economy in order to grow and remain in this competitive environment. RBI and other regulatory bodies have taken several policies in the light of developing the functioning of the banking sector. The best indicator for the health of the banking industry in a country is its level of Non-performing assets (NPAs). It reflects the performance of banks. NPAs in the Indian banking sector have become a major concern for the Indian economy. NPA has a direct impact on the profitability, liquidity and solvency position of the bank. Higher NPA indicates inefficiency of the bank and lower NPA indicate better performance and management of funds. To improve the efficiency and profitability of banks the NPA need to be reduced and controlled. This paper basically deals with the trends of NPA in banking industry, the factors that mainly contribute to NPA raising in the banking industry and also provides some suggestions how to overcome this burden of NPA on banking industry. Keywords: Private sector Banks, Non-Performing Asset and Banking system etc. Introduction A non performing asset (NPA) is a loan or advance for which the principal or interest payment remained overdue for a period of 90 days. The most important business implication of the NPAs is that it leads to credit risk management assuming priority over other aspects of bank's functioning. The bank's whole machinery would thus be preoccupied with recovery procedures rather than concentrating on expanding business. A bank with a high level of NPAs would be forced to incur carrying costs on non-income yielding assets. Other consequences would be reduction in interest income, high level of provisioning (as banks are required to keep aside a portion of their operating profit as provisions, as NPAs increases banks have to increase the amount kept aside as provisions which will reduce their net profits) stress on profitability and capital adequacy, gradual decline in ability to meet steady increase in cost, increased pressure on Net Interest Margin (NIM) thereby reducing competitiveness, steady erosion of capital resources and increased difficulty in augmenting capital resources. Developing of sound and healthy

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A strong banking sector is important for flourishing economy. The failure of the banking sector may have an adverse impact on other sectors. Non-performing assets are one of the major concerns for banks in India. NPAs reflect the performance of banks. A high level of NPAs suggests high probability of a large number of credit defaults that affect the profitability and net-worth of banks and also erodes the value of the asset. The NPA growth involves the necessity of provisions, which reduces the overall profits and shareholders' value. The issue of Non Performing Assets has been discussed at length for financial system all over the world. The problem of NPAs is not only affecting the banks but also the whole economy. In fact high level of NPAs in Indian banks is nothing but a reflection of the state of health of the industry and trade. The paper deals with understanding the concept of NPAs, its magnitude and major causes for an account becoming non-performing, projection of NPAs over next three years in Public sector banks and concluding remarks. Introduction Granting of credit for economic activities is the prime duty of banking. Apart from raising resources through fresh deposits, borrowings and recycling of funds received back from borrowers constitute a major part of funding credit dispensation activity. Lending is generally encouraged because it has the effect of funds being transferred from the system to productive purposes, which results into economic growth. However lending also carries a risk called credit risk, which arises from the failure of borrower. Non-recovery of loans along with interest forms a major hurdle in the process of credit cycle. Thus, these loan losses a ffect the banks profitability on a large scale. Though complete elimination of such losses is not possible, but banks can always aim to keep the losses at a low level. Non-performing Asset (NPA) has emerged since over a decade as an alarming threat to the banking industry in our country sending distressing signals on the sustainability and educability of the affected banks. The positive results of the chain of measures affected under banking reforms by the Government of India and RBI in terms of the two Narasimhan Committee Reports in this contemporary period have been neutralized by the ill effects of this surging threat. Despite various correctional steps administered to solve and end this problem, concrete results are eluding. It is a sweeping and all pervasive virus confronted universally on banking and financial institutions. The severity of the problem is however acutely suffered by Nationalized Banks, followed by the SBI group, and the all India Financial Institutions.

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Industrial, Corporate, and Infrastructure Performance:-As per released national accounts data, with 2011-12 as the base year, industrial growth was much better in 2012-13 and 2013-14 at 2.4 per cent and 4.5 per cent respectively. Growth in infrastructure, based on an index of eight core industries, has improved slightly to 4.4 per cent during April-December 2014-15 as compared to 4.1 per cent in the same period in 2013-14.

Today, World is on the threshold of a new revolution namely knowledge revolution. Society has undergone a paradigm shift and present shift is to knowledge society. Knowledge has emerged as the most important ingredient for success of any individual and organization and become imperative to survive and prosper. Knowledge is an intangible assets in an organizations and they must learn to manage their intangible assets, that is knowledge, to compete and become successful in own market and this practice is generally known as Knowledge Management (KM) or sometimes is referred to as business intelligence. Knowledge Management is fast gaining significance worldwide across industries of all types and banking. Indian corporate sector is undergoing a paradigm shift and adoption of concept of KM has become a strategic imperative rather than choice. Corporate sector is changing at high speed and high level of uncertainty and inability to predict future compel them to adopt KM to survive and prosper. Both public sector and private sector are endowed with adequate intellectual capital but they are not yet to adopt KM as strategic weapon for gaining competitiveness. KM is also viewed as a strategy of putting knowledge into action as a mean to increase organizational efficiency. This paper has a theoretical background and will explore historical perspective and concept of KM, Technical application and to

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A Study of Non Performing Assets Management with Reference to Select Indian Public Sector Banks and Private Sector Banks

IJTRS Volume IV Issue I, January 2019

9 Pages Posted: 12 Jun 2021

Prof Dr Preeti Sharma

University of Engineering & Management, Jaipur

Atul Bansal

Gulf university.

Date Written: 2019

The asset quality of banks is one of the most important indicators of their financial health. It also reflects the effectiveness of banks‟ credit risk management and the recovery environment. It is important that the signs of distress in all stressed accounts are detected early and those which are viable are also extended restructuring facilities expeditiously to preserve their economic value. (RBI/2012-13/208). The Indian banking sector has been facing severe problems of raising Non- Performing Assets (NPAs). The NPAs growth directly affects the profitability of banks. The problem of NPAs is not only affecting the banks but is affecting the economy as a whole. In fact high level of NPAs in Indian banks is nothing but a reflection of industry and trade. NPA do not generate any income, whereas, the bank is required to make provisions for such as assets. NPAs do not just reflect badly in a bank's account books, they adversely impact the working of economy. There are many research conducted on the topic of Non- Performing Assets (NPA) Management, concerning particular bank, comparative study of public and private banks etc. In this paper the researcher is considering the aggregate data of select public sector and private sector banks and attempts to compare analyze and interpret the NPA management from the year 2010 -2015. On the conceptual side, it gives an overview of NPA, various types of NPA and its cause. The tools used in the study are Least square method and ANOVA. The findings reveals the percentage of Gross NPA to Gross advances is increasing for public banks, the Estimated Gross NPA for 2014-15 is also more in public banks as compared to private banks and from the ANOVA test, it is concluded Ratio of Gross NPA to Gross Advances for public sector and private Sector Banks does not have significant difference between 2010 to 2015.

Keywords: Non Performing Asset (NPA), NPA Management, Public Banks, Private Banks

Suggested Citation: Suggested Citation

Prof Dr Preeti Sharma (Contact Author)

University of engineering & management, jaipur ( email ).

University of Engineering & Management ,Jaipur Sikar Road Jaipur, Rajasthan 302017 India

College of Administrative and Financial Sciences Sanad Bahrain

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