Non-Performing Assets in Indian Banking Sector: An Analytical and Comparative Study Between Public and Private Sector Banks

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Non-Performing Assets in Indian Banking Sector: An Analytical and Comparative Study Between Public and Private Sector Banks

PJAEE, 18 (7) (2021)

"Non-Performing Assets in Indian Banking Sector: An Analytical and


Comparative Study Between Public and Private Sector Banks"
SRUTHI. S
M.COM STUDENT, DEPARTMENT OF COMMERCE, UNIVERSITY OF KERALA,
KARIYAVATTOM CAMPUS.
Email: shruthisoorya@gmail.com

SRUTHI. S, Non-Performing Assets in Indian Banking Sector: An Analytical and


Comparative Study Between Public and Private Sector Banks, -- Palarch’s
Journal Of Archaeology Of Egypt/Egyptology 18(7). ISSN 1567-214x

Keywords: Non-Performing Assets, Banking Sector, Remedial measures, Public


sector, Private sector.

Abstract
Nowadays, Indian banking sector faces a number of serious issues regarding the increasing level of Non-
Performing Assets (NPAs). The Non-Performing Assets have a direct impact on the profitability as well as
the liquidity of banks. In India the concept of NPA has emerged after reforms in the financial sector were
introduced on the recommendation of the Narsimham Committee (1991). Money related framework
assumes a crucial job in the improvement of an economy which is the key factor towards a nation’s
improvement. It goes about as a middle person between streams of reserve for the individuals who spare as
a piece of salary and those putting resources into profitable resources. Banking establishments have the
significant job of tolerating long haul store and loaning cash to the borrowers. This research paper aims at
identifying which sector (Public/Private) has higher rate of NPA in Indian banking sector and also the paper
suggests about the remedial measures to overcome NPAs. The study is conducted purely based on
secondary sources of data such as articles, newspapers, magazines, etc.

Introduction
Banking is considered as the heart of every country’s economy. Any issue relating
to the banking sector will adversely affect the economy of a country. Nowadays,
Indian banking sector faces a number of serious issues regarding the increasing
level of Non-Performing Assets (NPAs). A Non-Performing Asset is defined as a
credit facility in respect of which the interest and/or installment of principle has
remained “past due” for a specific period of time (90 days. March 2004 onwards).
Non-Performing Asset means an asset of a borrower, which has been classified as
standard, sub-standard, loss or doubtful asset with respect to the guidelines of asset
classification. NPAs directly affect the liquidity, profitability and the overall
survival of banks. The main cause of NPA is when the customer makes any default
in payment of loan amount, which he has already been taken from the bank. The
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Non-Performing Assets in Indian Banking Sector: An Analytical and Comparative Study Between Public and Private Sector Banks PJAEE, 18 (7) (2021)

increasing amount of defaults results in higher rate of NPAs in banking industry.


NPA concept which effect from 31 March 2001. As needs be, as from that date, a
NPA will be a development where- Interest and additionally portion of chief stay
late for a time of over 90 days in regard of a term advance.

Review of Literature

Standard Asset Assets which has remained NPA for a period not exactly or equivalent to
a year.

Sub-Standard NPA for the period less than or equal to 12 months


Asset

Doubtful Asset NPA for the period exceeding 12 months

Loss Asset Loss Asset is viewed as uncollectible and of such little worth that its
duration as a bankable resource isn't justified, in spite of the fact that there
might be some rescue or recuperation esteem.
1. Reddy (2004) basically analyzed the different issues relating to terms of credit
of Indian banks. In this unique situation, it was seen that 'the component of intensity
doesn't matter to the criminal behavior.
2. Chaudhury and Singh (2014) the scientists point to the effect of monetary
changes in the nation on the advantage nature of the banks. As far as gathering
savvy results, the creators locate a critical distinction in their nature of credits. In
any case, a positive pattern reflected through declining NPA is seen.
3. Ministry (2014) "The account service has put the loaning of state-run banks
under close watch after a spike in non-performing resources (NPAs) that has
constrained a considerable lot of them to hinder credit."
4. Shah R.( 2014) Rashesh Shah, Chairman and CEO, Edelweiss Group, "Due
to high loan costs, swelling and NPA issues, the whole financial industry is under
worry from a speculator's perspective, yet there are loads of private area banks
which are acceptable quality organizations, which will do well as and when this
cycle gets over".

Objectives of the Study


• To study the impact of NPAs on HDFC Bank and State Bank of India
• To analyze the financial performance of the public and private sector banks of
India during the last 4 years.
• To know the relationship between Gross NPA, Net NPA and Net Profits of
the banks.

Research Methodology
This research is analytical in nature. To achieve the objective of the study, various
secondary data sources such as Annual reports of both the banks during 2016-2019
were used.
Variables of the Study:
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Non-Performing Assets in Indian Banking Sector: An Analytical and Comparative Study Between Public and Private Sector Banks PJAEE, 18 (7) (2021)

ICICI Bank (in Crores)


Year 2016 2017 2018 2019

Gross NPA 26720.93 42551.54 54062.51 46291.63

Net NPA 13296.75 25451.03 27886.27 13577.43

Total Advance 492837.65 526766.63 584122.08 668498.75

State Bank of India (in Crores)


Year 2016 2017 2018 2019

Gross NPA 98172.80 112342.99 223427.46 172750.36

Net NPA 55807.02 58277.38 110854.70 65894.74

Total Advance 1463700.42 1571078.38 1934880.19 2185876.92

Data Analysis and Interpretation


Table:1 The Table Showing Four Year Comparison on Gross NPA of ICICI
Bank & State Bank of India (In Crores)
Year Gross NPA of ICICI Bank Gross NPA of State Bank of India
2016 26720.93 98172.80
2017 42551.54 112342.99
2018 54062.51 223427.46
2019 46291.63 172750.36
Source: Secondary Data
Chart 1
300000
200000 Gross NPA of ICICI Bank

100000
Gross NPA of State Bank of
0 India
2016 2017 2018 2019

Interpretation:
The Gross NPA of State Bank of India and ICICI Bank increases on an increasing
scale.
Table 2: The Table Showing Four Year Comparison on Net NPA Of ICICI Bank
& State Bank of India (In Crores)
Year Net NPA of ICICI Bank Net NPA of State Bank of India
2016 13296.75 55807.02
2017 25451.03 58277.38
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Non-Performing Assets in Indian Banking Sector: An Analytical and Comparative Study Between Public and Private Sector Banks PJAEE, 18 (7) (2021)

2018 27886.27 110854.70


2019 13577.43 65894.74
Source: Secondary Data
Chart 2

150000
100000 Net NPA of ICICI Bank
50000 Net NPA of State Bank of India
0
2016 2017 2018 2019

Interpretation:
The Net NPA of State Bank of India increases in an increasing scale, but during
2019 , ICICI Bank has a constant decrease in the Net NPA.
Table 3: The Table Showing Four Year Comparison on Net Profit of ICICI Bank
& State Bank of India (In Crores)
Year Net Profit of ICICI Bank Net Profit of State Bank of India
2016 9726.29 9950.65
2017 9801.08 10484.10
2018 6777.42 -6547.45
2019 3363.30 862.23
Source: Secondary Data
Chart 3
15000

10000

5000 Net Profit of ICICI Bank

0 Net Profit of State Bank of India


2016 2017 2018 2019
-5000

-10000
Interpretation:
On 2016 to 2017 the Net Profit of the State Bank of India seems to be higher than
that of the ICICI Bank. But from 2018 onwards, the Net Profit of the State Bank of
India is declining in an increasing rate.
Table 4: The Table Showing Four Year Comparison on Total Advance of ICICI
Bank & State Bank of India (In Crores)
Year Total Advance of ICICI Bank Total Advance of State Bank of India
2016 492837.65 1463700.42
2017 526766.63 1571078.38
2018 584122.08 1934880.19
2019 668498.75 2185876.92
Source: Secondary Data
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Non-Performing Assets in Indian Banking Sector: An Analytical and Comparative Study Between Public and Private Sector Banks PJAEE, 18 (7) (2021)

Chart 4
2500000
2000000
Total Advance of ICICI Bank
1500000
1000000
Total Advance of State Bank of
500000 India
0
2016 2017 2018 2019

Interpretation:
The Total Advances of both banks increases on an increasing scale.
Correlation between Net NPA and Net Profit of State Bank of India:
CORRELATION = 𝑛 ∑𝑥𝑦− ∑ .∑𝑦
√𝑛 ∑𝒙𝟐 .(∑𝒙𝟐 )−𝑛 ∑𝑦2 .(∑𝒚𝟐 )
x = NET NPA (in crores)
y = NET PROFIT (in crores)
Table 5: The Table showing Four years of Net NPA and Net Profit of State
Bank of India (in Crores)
Year Net NPA (x) (In Crores) Net Profit (y) (In Crores)
2016 55867.02 9950.65
2017 58277.38 10484.10
2018 110854.70 -6.547.45
2019 65894.74 862.23

Table 6: The Table showing four years of Correlation between State Bank of
India and ICICI Bank
Year x y xy 𝒙𝟐 𝒚𝟐

2016 55867.02 9950.65 555913162.5 3121123923 99015435.42

2017 58277.38 10484.10 610985880 3396253019 109916353

2018 110854.70 -6.547.45 725815605.5 1.228876 -42869101.5

2019 65894.74 862.23 56816422 4342116759 743440.5

Total 290893.84 14749.53 1949531070 1.08594937 166806127.4

Correlation = 0.428168
Interpretation:
From the above calculation t, came into conclusion that the Net NPA and Net Profit
of ICICI Bank are positively correlated, so the Non-Performing Assets are more.
By this we can interpret that the repayment of debt by the customers are less.

Findings
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Non-Performing Assets in Indian Banking Sector: An Analytical and Comparative Study Between Public and Private Sector Banks PJAEE, 18 (7) (2021)

• It was found that there is an increase of 38% in the Gross NPA of State Bank of
India b during 2016-2017.
• The Net NPA of State Bank of India showed an increase of 23%.
• It was found that there is an increase of 11% in the Total Advance of State Bank
of India during 2018-2019.
• The Gross NPA of ICICI Bank showed an increase of 28% during 2018-2019.
• It was found that there is an increase of 25% in the Net NPA of ICICI Bank
during 2016-2017.
• Based on the observations obtained it can be said that, higher NPA is a result of
diversion of funds, deficiency in the credit appraisal standards and lack of
supervision .

Suggestions
• The ICICI Bank should take corrective measures to control NPA.
• Good customer satisfaction procedure must be followed by both banks.
• Borrower’s education periodical inspection of Units and sympathetic
consideration of genuine problems of the borrowers will help banks in making
better loan Recovery.
• Meetings must be conducted with the NPA borrowers to know about the reasons
for the default.

Conclusion
The study is to have a comparative analysis on NPA of State Bank of India and
ICICI Bank. Detailed analysis was produced using the information gathered
through secondary methods and the kind of derivation was attracted discoveries and
recommendations are given. Based on the investigation directed, it is demonstrated
that in the year 2016-2018 the ICICI bank have higher obligation contrasted with
State Bank of India. Be that as it may, on account of ICICI Bank the connection
between's Net NPA and Net Profit is sure which implies this bank have higher
obligation. Thus, we can presume that while looking at the NPA of the two banks,
the ICICI Bank have higher obligation. Remedial measures ought to be taken to
control it as the old expression demonstrates "Prevention Is Better than Cure".

References
Bhttacharya,K.M.(2002).Management of Non-Performing Advances in
Banks.Journal of Accounting and Finance,8(9), 123-130.
Kamath, K. V. (2014). presented a Seminar o "Article on NPA-2014".
Reddy. Y.V, (2002). NPA’s are a major cause of concern, The Financial Express,
8(6), 45-52.
Sahni, D. and Seth, D.C. (2017), “Non-performing assets (NPAs) in Indian
commercial banks”, International Journal of Engineering Science and
Computing,7(4), 6243-6247.
Sengupta, R. and Vardhan, H. (2017), “Non-performing assets in Indian banks: this
time it is different”, Indira Gandhi Institute of Development and Research
Economic and Political Weekly,52(12),85-95.
Sharma, G. (2018), “Unmasking the ordeal of growing NPAs in Indian banking
sector”, International Journal of Business and Management Invention,7(7), 43-50.
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Non-Performing Assets in Indian Banking Sector: An Analytical and Comparative Study Between Public and Private Sector Banks PJAEE, 18 (7) (2021)

Singh, A. (2016), “Performance of non-performing assets (NPAs) in Indian


commercial banks”, International Journal of Marketing, Financial Services and
Management Research, 2(9), 86-94.
Thomas, R. and Vyas, R.K. (2016), “Loan recovery strategy in Indian banks”,
International Journal of Commerce and Management Research.,2(12), 158-164.
https://economictimes.indiatimes.com/icici-bank-ltd/balancesheet/companyid-
9194.cms
https://economictimes.indiatimes.com/topic/SBI-NPA

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