Corporate Governance and Sustainability Review/ Volume 4, Issue 1, 2020

NON-PERFORMING ASSETS IN INDIA:

A CRITICAL ANALYSIS OF PUBLIC AND
PRIVATE SECTOR BANKS
Vinay Kandpal *
* School of Business, UPES, Dehradun, Uttarakhand, India
Contact details: UPES, P.O. Bidholi Via-Prem Nagar, 248007 Dehradun, India

Abstract
How to cite this paper: Kandpal, V. The paper identifies and analyzes the causes that affect
(2020). Non-performing assets in
India: A critical analysis of public
non-performing assets (NPAs), hinder its effective observance, and
and private sector banks. Corporate recommends appropriate measures to ensure their effective
Governance and Sustainability monitoring and control. The banks selected for this research work are
Review, 4(1), 65-73. having higher NPAs and are top banks in their sector. As per the
http://doi.org/10.22495/cgsrv4i1p6
Global Financial Stability Report of International Monetary Fund (IMF,
Copyright © 2020 by Virtus 2009), identifying and dealing with distressed assets, and
Interpress. All rights reserved recapitalizing weak but viable institutions and resolving failed
institutions are stated as the two of the three important priorities
ISSN Online: 2519-898X
ISSN Print: 2519-8971
which directly relate to NPAs. This research work finds the reasons for
non-performing loans by considering a set of 50 variables and
Received: 05.02.2020 provides the necessary measures. Statistical tool SPSS was used to run
Accepted: 17.04.2020 the factor analysis test. Sectoral disparities in the NPA ratio to
JEL Classification: C33, G21, E51,
advances in public and private sector banks were the main source of
G11, C23 motivation to analyze and compare factors affecting non-performing
DOI: 10.22495/cgsrv4i1p6 assets (NPAs) of public and private sector banks in India. Some of the
reasons for NPA are lack of frequent interaction or follow-up with
borrowers, manipulation of income or financial statement by
borrowers, industrial problem and death of earning member of the
family.

Keywords: Non-Performing Assets, Profitability, Banks, Public Sector,

Private Sector, Bank Credit

Authors’ individual contribution: The Author is responsible for all the

contributions to the paper according to CRediT (Contributor Roles
Taxonomy) standards.

Declaration of conflicting interests: The Author declares that there is no

conflict of interest.

1. INTRODUCTION collateral as security. Management of

non-performing assets is essential for the stability
Non-performing resources of banks have turned into and development of the banking sector in India.
a noteworthy worry in India, with a relatively general Reserve Bank of India (RBI) noted an improvement in
periodical event of extensive esteem credit the NPA management process, as banks managed
defaults/cheats adding to the already humongous their NPA despite the adoption of credit time
levels of NPAs in banks (particularly public sector standards for 90 days. Management of NPA is crucial
banks). They are an immediate reflection on the for the long-term sustainable growth of the banking
execution of banks. An abnormal state of NPAs sector with RBI and the Government of India. The
influences the gainfulness, total assets, and liquidity steps for controlling NPA could be initiatives such as
of banks, notwithstanding posturing risk on the The Securitization and Reconstruction of Financial
nature of the benefit and pushing them to the verge Assets and Enforcement of Securities Interest
of indebtedness. Banks have to make mandatory (SARFASEI) Act, 2002 (empowering banks to auction
reserve, which reduces the overall profits and the residential or commercial properties of the
ultimately the market value of shares. The public defaulters to recover the loans), Capital Adequacy
sector banks provide financial supports and under Basel III Norms and Insolvency and
advances to various sectors in the without Bankruptcy Code. RBI recommended the financial
considering the pros and cons and the possibility of institutions to strengthen their credit standards,
getting back the money advanced and without taking credit appraisal and follow up procedures of loan

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 Corporate Governance and Sustainability Review/ Volume 4, Issue 1, 2020

monitoring to minimize the risks of NPAs. “To the reform in financial sectors. NPA affects the
manage NPA effectively, both proactive and curative profitability because banks cannot generate income
measures are required. Proactive measures imply from these and it increases the provisions and
efficient loan appraisal and its management, while funding costs. Poor management of NPA can badly
curative measures focus on realizing NPA accounts affect the economy. They had suggested the
using minimum possible efforts. At the pre- appropriate measures to control or decrease NPAs.
disbursement stage, appraisal techniques of the Manab, Theng, and Md-Rus (2015) had studied the
bank need to be sharpened. All technical, economic, earnings management and credit default forecast of
commercial, organizational and financial aspects of Malaysia and established the result that the liquidity
the project need to be assessed realistically. Bankers ratios, productivity ratio, and profitability ratio are
should satisfy themselves that the project is significant factors in determining credit risk.
technically and commercially feasible with reference Laveena and Kumar (2016) concluded that India‟s
to technical know-how, the scale of production, land NPA level of the banking system remains high
acquisition, etc. Some projects are born sick because compared to international standards. Bardhan and
of unrealistic planning, inadequate appraisal, and Mukherjee (2016) observed that the capital adequacy
faulty implementation”. ratio is a prudential indicator for NPAs of banks and
In the case of the Greek bank, Louzis, Vouldis, larger size banks are more prone to default than
and Metaxas (2012) argue that larger banks enjoy smaller banks. Further, the reduction in NPAs is
relatively risky activities, leading to a higher burden possible with an increase in the profits of banks.
of NPAs, rather than diversification. The bank‟s “Practice of restructuring of standard advances
profit performance can also play an important role creates a moral hazard problem and gives leeway to
in the impact of its NPAs. With the advent of the borrowers to state that projects have failed due to
Insolvency and Bankruptcy Code, 2016, there have extraneous events. The official NPAs figures (gross
been unprecedented changes in the landscape of NPAs to gross advances) undermines the high loan
insolvency laws in India, most importantly the delinquencies in banks” (Samantaraya, 2016). This
inclusion of the concept of the corporate insolvency research paper aims at analyzing the relationship
resolution process. With the advent of this new between non-performing loans and GDP growth rate
approach, the focus was somewhat shifted to and is structured on Kenya‟s macro-economic
balance the needs of both the company as well as environment during 1980-2015. The researcher
the „operational creditor‟ (a new term crafted to concludes by stating that the macroeconomic
represent the erstwhile secured creditors, environment and its support play a significant role
employees, and unsecured creditors all within the in the effective monitoring of non-performing loans.
fold of a single term), rather than bluntly liquidating (Muthami, 2016) Meher (2017) in the post-
and distributing the remains of a debt-ridden demonetization period looks into the impact of the
company among its creditors in order of priority. government‟s notebandi decision on the NPA of
This new approach sought to curate the debt itself Indian Banks. The researcher finds both positives
in such a way to minimize the risk of all the parties and negatives of the event in the banking industry.
involved in the situation. Sengupta and Vardhan (2017) have compared
The rest of the article goes as follows. Section 2 the two banking crisis episodes post-liberalization-
discusses the existing literature on the one that took place in the late 1990s and the other
non-performing loans and their determinants that commenced after the 2008 global financial
followed by the research problem and objective of crisis that raised the issue of NPAs. The authors are
study. In Section 3, the data and methodology used of the view that strong governance, proactive
for this paper are discussed. Section 4 discusses the banking regulations and a strong legal framework
banks in India and the various steps taken by for resolution of NPAs would assist in solving the
Regulator Reserve Bank of India to control problem of NPAs. On the other hand, regulatory
non-performing assets, it shows a comparison forbearance would adversely affect the banking
between public and private sector NPAs based on crisis. Mishra and Pawaskar (2017) have
secondary data, Section 5 shows the empirical recommended that banks should have a good credit
results are analyzed based on primary data and appraisal system to avoid NPAs. They point out that
Section 6 concludes the paper. Section 7 shows the the problem of NPAs can be solved if there is a
scope for future research and the next two sections proper legal structure to support the banks in the
show the practical and managerial implications. recovery of debt. Sahni and Seth (2017) study the
different causes responsible for rising NPAs and the
2. REVIEW OF LITERATURE impact it has on the operation of banks. The authors
have mentioned several preventive and curative
Researchers have felt the importance of effective measures to control the NPAs. They have suggested
management of non-performing assets and credit that proper assessment regarding the
standards or policies as a field of study. Researchers credit-worthiness of the borrower should be done to
have tried to carry out empirical research on the ensure the speedy recovery of loans. Mittal and
management of non-performing assets of banks Suneja (2017) have analyzed the level of NPAs in the
both in India and abroad. The research findings of banking sector in India and the causes that have led
some research works are discussed as follows. to the rise in NPAs. They have proposed that though
Pestova and Mamonov (2013) had studied the the government has taken a number of steps to
Russian banks‟ credit risk through macroeconomic reduce the problem of NPAs, bankers should also be
and bank-specific parameters by the use of proactive in adopting well-structured policies to
single-equation panel data models and noted that manage NPAs. The loan should be sanctioned after
the macroeconomic factors, the rise in interest rates considering the return on investment of a proposed
accelerate the growth of bad assets. Sontakke and project and the credit-worthiness of the customers.
Tiwari (2013) highlighted that NPA is catching the Banerjee, Verma, and Jaiswal (2018) have examined
attention as a big problem for the Indian banks after the status of gross NPAs and net NPAs in private
sector banks and public sector banks to study their

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 Corporate Governance and Sustainability Review/ Volume 4, Issue 1, 2020

effect on the asset quality of the banks. Deliberate  to suggest various remedial measures for
loan defaults, poor credit management policies, NPA management;
sanctioning of loans without analyzing the  to evaluate the financial performance of the
risk-bearing capacity of the borrowers are the main selected public sector banks and private sector
reasons for the piling up of NPAs. The banks should banks in India on a comparative basis with the help
stress on better strategy formulation and its proper of relevant ratios using the CAMEL model from 2008
execution as well. Stringent provisions by the to 2018.
government could help in reducing the level of
NPAs. Mukhopadhyay (2018), in his paper, has 3. RESEARCH METHODOLOGY
discussed finding solutions to India‟s NPA woes. He
has suggested that to resolve the problems of NPAs This study focuses on the comparison of factors
the RBI should not abide by a single model; instead, effecting non-performing assets of banks in India.
an innovative and flexible approach is needed for The branches of banks selected for the study are
each affected bank, which should differ on a having higher NPA. The banks selected for the study
case-by-case basis. are State Bank of India (SBI), Union Bank of India,
Kumar, Subba Rao, and Kusuma (2018) make an Indian Overseas Bank, Oriental Bank of Commerce,
interesting study to find out the main reasons UCO Bank, Canara Bank, Punjab National Bank (PNB),
behind accumulating NPAs. They find the main HDFC Bank, Axis Bank, ICICI Bank, IndusInd Bank,
reasons to be industrial sickness, change in ING Vysya Bank Ltd., Kotak Mahindra Bank Ltd, and
government policies, poor credit appraisal system, Yes Bank Ltd. For this research work, primary data
willful defaults and defect in the lending process. was collected through questionnaires and personal
Dey (2018) in a very recent research paper looks at interactions with bank officers. Judgement sampling
the recovery aspect of recovery of poor loans of the was used to collect the data from the middle-level
Indian commercial banks. The author finds the role
managers. For the study, secondary data were
of DRTs to be much better compared to the recovery
collected from the Reserve Bank of India‟s annual
through Lok Adalats and SARFASEI Act.
report, statistical tables related to the banks in India
Sharma, Rathore, and Prasad (2019) highlighted
and currency and finance reports. NPA articles and
“the role played by a banking system is lending to
papers published in various business journals,
business or a borrower who wants to invest or
magazines, newspapers, periodicals have been
expand. Lending to business sustains a Credit Risk,
studied and information has been used on the
which ensures or arises from the failure of the
internet and other sources. An attempt is made
borrower to fulfill its contractual obligations either
through this research work to find the causes of
during transactions or on future obligations”. The
non-performing loans by considering a set of 50
failure of the banking sector has an adverse impact
variables and provide the necessary measures for
on another sector also. After reviewing research
NPA management.
papers, we felt a strong need for research work on
All the data collected through questionnaires
causes leading to NPA using primary and empirical
work and to recommend measures for credit risk was tabulated. For data analysis, statistical software
management in India. NPAs cannot be eliminated SPSS 17 was used. This software helps to run
but steps like Bankruptcy Code could be taken to statistical tests. Once we run a statistical test, all
reduce and recover bad loans through effective associated outputs are displayed in the data output
implementation. Agarwala, V. and Agarwala, N. file. In this research work, factor analysis is used as
(2019) after assessing the Indian banking scenario it helps to reduce the number of variables and
reveals that the growth rate of NPAs is low as groups variables having similar characteristics. For
compared to the nationalized banks, as well as the Analyzing the NPA through the CAMEL model the
SBI and its associates. The nationalized banks and information for the selected banking companies for
the associate banks of SBI failed to handle the issue the period 2008 to 2018 has been collected from
of poor loans effectively due to which the growth in secondary sources and RBI database. For analyzing
such loans has been phenomenally high. the information, the technique of ratio analysis
using the CAMEL model, rank analysis and statistical
techniques have been applied. The financial
2.1. Research problem
institutions selected for the study have higher NPA
and are top banks in their sector.
The flow of credit to various sectors of the economy
The questionnaires were filled up by 350
is increasing. The main sectors are infrastructure,
middle-level managers of selected banks from
agriculture, services, and industry. In most of the
northern states of India. This study was conducted
research papers, they are discussing issues like
by collecting responses personally, telephonically
NPAs in public sector banks and private sector
banks, the reasons behind NPAs and how to solve and through email. In drafting, questionnaires
the NPA problem. There was no study conducted to suggestions from bank officers were also
analyze how much deployment of gross bank credit incorporated. The responses from questionnaires
by major sectors and the amount of NPAs created by were collected by visiting 115 branches and 10
each sector. We can also analyze the reasons behind regional offices of banks.
the NPA in each sector and how to solve the problem
sector-wise. It helps us to find the most problematic 4. BANKS IN INDIA
sector and take remedial actions accordingly.
The Indian banking system consists of 27 public
2.2. Objectives of the study sector banks, 21 private sector banks, 49 foreign
banks, 56 rural regional banks, 1562 municipal
The objectives of the study are as below: cooperative banks, and 94,384 rural cooperative
 to identify and analyze the factors banks, in addition to credit institutions. Towards the
responsible for NPA; end of the second quarter of 2012, the total credit

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 Corporate Governance and Sustainability Review/ Volume 4, Issue 1, 2020

extended by commercial banks reached 90,579.89 Basel II:

billion rupees ($ 1,290.68 billion), and deposits rose
to $ 118,501.82 billion. The assets of public sector In 2004 Basel II guidelines from the BCBS were
banks amounted to 1 557.04 billion. Indian banks published, which were considered as improved and
are increasingly focusing on adopting an integrated reformed versions of the Basel Agreement. The
approach to risk management. Banks have already guidelines were based on three parameters:
adopted the Basel II International Banking 1. Banks should maintain a minimum capital
Supervision Agreement, and most banks are now in adequacy requirement of 8% of risky assets.
compliance with Basel III capital requirements, 2. It is necessary for banks to develop and use
which expire on March 31, 2019. The Reserve Bank better risk management techniques in monitoring
of India (RBI) has decided to create a public credit and managing all three types of risks.
register (PCR), a comprehensive credit information 3. Banks must necessarily disclose their
database available to all stakeholders. The exposure to risk, and so on of the central bank.
Ordinance on the Insolvency and Bankruptcy Code
(amendment), a draft law for 2017 has been adopted Basel III:
and is expected to strengthen the banking sector.
Basel III published in December 2010, is the third in
the Basel series of agreements. These guidelines
4.1. Basel norms were introduced in response to the 2008 financial
crisis. These agreements address the risk
Banks lend different types of borrowers and
management aspects of the banking sector. In short,
everyone at their own risk. They lend from the
we can say that Basel III is the global regulatory
public deposits, as well as money raised from the standard for banks‟ capital adequacy, stress tests,
market – equity and debt. The mediation activity and market liquidity risk. It improves the ability of
exposes the bank to various risks. Cases of major the banking sector to absorb shocks arising from
bank collapse due to their inability to maintain risk financial and economic stress, regardless of source;
exposures are readily available. Therefore, banks improves risk management and governance;
must keep aside a certain percentage of the capital strengthens bank transparency and disclosure.
as collateral against the risk of non-recovery. The
Basel Committee has drafted norms called Basel
norms for banking to deal with risk.
4.2. The Insolvency and Bankruptcy Code
Basel is a city in Switzerland. It is the
The Insolvency and Bankruptcy Code (IBC), 2016 is
headquarters of the BIS, which promotes
the Indian bankruptcy law, which seeks to
cooperation between central banks with a common
consolidate the existing framework by creating a
goal of financial stability and common banking
single insolvency and insolvency law. The
regulations. Every two months the BIS hosts a
Bankruptcy Code is a decision to suspend
meeting of the governor and senior officials of the
bankruptcy, which is currently a long process and
central banks of the member states.
does not offer an economically viable agreement.
The Basel guidelines refer to broad supervisory
Strong insolvency framework in which the costs and
standards formulated by these groups of central
timing that are made is minimized in India. The
banks – the Basel Committee on Banking Supervision
Code will be able to protect the interests of small
(BCBS). The set of the BCBS Agreement, which investors and make the process of doing business a
focuses mainly on the risks to banks and the less cumbersome process. Bankruptcy is a legal
financial system, is called the Basel/Basel norm. The status that is usually imposed by a court, a firm or a
purpose of the agreement is to ensure that financial natural person unable to meet debt obligations. The
institutions have sufficient capital at the expense of new bankruptcy bill of India is trying to create a
the liabilities and incur unexpected losses. India has formal insolvency resolution process (IRP) for
adopted the Basel Banking Rules. In fact, according businesses either by creating a viable survival
to several parameters, the RBI has set stringent mechanism or by ensuring their quick liquidation.
norms compared to the norms prescribed by the When the IRP is included, creditors‟ requests are
BCBS. frozen for 180 days, during which they will hear
suggestions for revival and decide on their future
Basel I: course of action. Within these 180 days, 75% of
creditors have to agree to a revival plan. If this
In 1988 BCBS introduced a capital measurement minimum threshold is not met, the company
system called the Basel Capital Accord, also called automatically goes into liquidation. If three-quarters
Basel I. It focuses almost entirely on credit risk. It of the creditors decide that the case is complicated
defines the capital and the structure of risk weights and cannot be dealt with within 180 days, the judge
for banks. The minimum capital requirement is fixed may grant a one-time extension of up to 90 days to
at 8% of risk-weighted assets (RWA). RWA means the trial.
assets with different risk profiles.
Assets of banks were classified and grouped Table 1. Public sector banks
into five categories according to credit risk, carrying
risk weights of: Year Gross advances Gross NPAs
– 0% (for example cash, a home country debt 2013 40559 1559
like treasuries); 2014 45904.5838 2167.3919
– 20% (securitizations such as MBS rated AAA); 2015 48452.69 2627.45
– 50%; 2016 50821.56 5020.68
– 100%; 2017 51422.24 6410.56
– some assets are given no rating. Note: Amount in billion.

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 Corporate Governance and Sustainability Review/ Volume 4, Issue 1, 2020

Figure 1. Public sector banks (2013-2017)

60000

50000

40000

30000

20000

10000

0
2013 2014 2015 2016 2017

Gross Advances Gross NPAs

Figure 1 is related to the gross advance and Table 2. Private sector banks
gross NPAs of public sector banks from the year
2013 to 2017. In the year 2013, the gross advance Year Gross advances Gross NPAs
was 40559 billion and gross NPA was 1559 billion. 2013 10466 200
The gross NPA was 3.8% of the gross advance. In the 2014 12117.31 227.4386
year 2017, the gross advance was increased to 2015 14373.39 315.76
51422.24 billion and the gross NPA also increased to 2016 17916.81 483.8
2017 21048.8 738.42
6410.56 billion. The gross NPA was 12.46% of the
Note: Amount in billion.
gross advance. When we analyze the whole data we
can find out an increase in gross NPA percentage
every year. The current trend of increasing NPA is
not good for public banks.

Figure 2. Private sector banks (2013-2017)

25000

20000

15000

10000

5000

0
2013 2014 2015 2016 2017

Gross Advances Gross NPAs

Figure 2 is related to the gross advance and the 2010 to 2018. The advance is divided into mainly
gross NPAs of the private sector banks from the year four heads. They are standard advances,
2013 to 2017. In the year 2013, the gross advance sub-standard advances, doubtful advances, and loss
was 10466 billion and gross NPA was 200 billion. advances. In the year 2010, the standard advance
The gross NPA was 1.91% of the gross advance. In was 26735 billion and it contains the highest
the year 2017, the gross advance was 21048.8 billion amount of advance with a percentage of 94.65. The
and the gross NPA was 738.42 billion. The gross NPA advance of sub-standard and doubtful was 288
was 3.50% of the gross advance. From the given data billion and 254 billion. The loss advance was had a
we can see a small increase in NPA every year. For 58 billion advance in 2010. The total advance for the
now, there is no big problem for the private sector public sector bank in the year was 8856 billion. From
banks but if we can control the slow increase in NPA the 8856 billion the gross NPA was 476 billion which
then it will be beneficial for the banks. 5.4% of total advance. In 2018, the total advance of
The data is related to the advances given by public sector banks was 61417 billion and the
banks and the amount of gross NPA occurred from standard advance was 52461 billion with a 85.4% of
the amount. For easy analysis, the banks are total advance. The sub-standard advance and the
classified into mainly four heads and those four doubtful advance were 2146 billion and 6277 billion.
heads are public sector banks, private sector banks, The loss advance was only 0.9% of total advance
foreign banks and scheduled commercial banks. with an amount of 533 billion. From the total
In Figure 3, it shows the amount of advance advance, 14.6% were gross NPA. The percentage of
given by the public sector banks under different gross NPA in total advance was increasing every
heads. The data which has taken for this is from year.

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 Corporate Governance and Sustainability Review/ Volume 4, Issue 1, 2020

Figure 3. Public sector banks (2010-2018)

2010
2011
2012
2013
2014
2015
2016
2017
2018

0 10000 20000 30000 40000 50000 60000

Loss Advances Doubtful Advances Sub-Standard Advances Standard Advances

In Figure 4, the advances related to private advance of 6442 billion 176 billion were gross NPA
sector banks are given. The data from 2010 to 2018 with a percentage of 2.7%. In the year 2018, the
were taken into consideration. The total advances standard advance was increased to 26000.28 billion
were divided into four based on the standard with 95.4% on total advance. The sub-standard
advance, sub-standard advance, doubtful advance advance and doubtful advance were 3118.31 billion
and loss advance. In the year 2010, the standard and 885.86 billion. The loss advance was having the
advance was having a higher amount of advance least contribution with 54.46 billion. From the total
with 6265 billion. It was 97.3% of the total advance. advance of 27259 billion, 1259 billion were
The sub-standard and doubtful advances were 89 converted into gross NPA. The percentage of NPA in
billion and 66 billion. The least amount of advance 2018 was 4.6%. The data is showing an increasing
was 22 billion by loss advance. From the total trend of gross NPA.

Figure 4. Private sector banks (2010-2018)

2010
2011
2012
2013
2014
2015
2016
2017
2018
0 5000 10000 15000 20000 25000 30000

Loss Advances Doubtful Advances Sub-Standard Advances Standard Advances

5. DATA ANALYSIS AND INTERPRETATION of family and business disappointment/absence of

entrepreneurial information on borrower‟s side. The
The study shows that there is remarkable progress present system of processing requests for loans by
in both the selected major public and private sector high net worth individuals/corporate houses is
banks during the study period. In terms of overall fraught with loopholes, which are easily exploited by
group performance and performance consistency unscrupulous companies in collusion with corrupt
based on CAMEL‟s ratings, it is observed that as a bank officials. The banks have not correctly
whole the selected public sector banks performed implemented the relevant information technology
better in comparison to private sector banks. Public tools facilitating the Basel II/III norms for risk
sector banks in India should be efficient in their management, thus leading to regulatory failures.
overall asset management policy, employee The first result obtained with the help of the
performance, cost control and more statistical method is a table of descriptive analysis
customer-friendly banking operations to keep pace for all the variables under observation. Looking at
with India‟s challenging private sector bank the Mean Column given in Table 3 it can be
performance and compete with global players. Some concluded that the possibility of the loan resulting
of the variables that may affect non-performing in non-performing assets (NPA) is more in case of
assets are kind of advance, the credit value of personal loan (1.1) as this is rated on a scale of 1 to
borrowers, collateral security, the absence of 5 with 1 rank being highly important. The personal
legitimate observing, inadequacy in credit loan is followed by housing loan (4.2) and education
assessment standard, the death of earning member loan (4.3).

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Table 3. Descriptive statistics

Mean Std. deviation Analysis N

Personal loan 1.1037 .30528 328
Vehicle loan 4.6738 .49491 328
Housing loan 4.2470 .68847 328
Agriculture loan 4.7348 .44214 328
Business loan 4.5549 .49774 328
Education loan 4.3872 .48785 328
NRI loan 4.7866 .41034 328
Loan to SSI 4.7073 .45569 328
Equipment loan 4.7591 .42825 328
Borrowers total income 4.7439 .51428 328
Borrowers creditworthiness 4.5610 .61773 328
Borrowers credit needs 4.0396 .73880 328
Borrowers line of economic activity 4.0610 .74764 328
Borrowers family background 3.1098 .89519 328
Previous credit record 4.3811 .60921 328
Educational background of Borrower 3.2622 .87691 328
Experience & knowledge of borrower/entrepreneur 4.2530 .55850 328
Growth of the business sector of borrower 3.6280 .48406 328
Willful default by Borrower 2.3445 .57488 328
Lack of supervision and follow up of advances 3.7470 1.04924 328
Lack of proper policy of appraisal 3.8659 .75439 328
Lack of legal support 3.7957 .46700 328
Natural calamities 3.2134 .85503 328
Change of government policies 2.7409 .89677 328
Business failure/lack 2.7195 .84266 328
Death of a key person 3.8598 .89091 328
Economic downturn 3.6402 .72851 328
Effect on sales due to product obsolescence 3.7470 1.00457 328
Inefficient management 3.6128 .62031 328
Political intervention 3.2957 .89223 328
Wrong economic decision by a borrower 2.9116 .93265 328
Manipulation by the borrower 4.2134 .65679 328
Lack of frequent interactions with the borrower 4.3110 .71737 328
Industrial problem 3.9726 .89980 328
Lack of logistics 3.5183 .62047 328
Lack of focus of the top management 3.3354 .96595 328
Managers have a lack of motivation 3.3506 1.18693 328
Lack of manpower 3.0915 1.11325 328
Effort to reduce cost 3.8780 1.01837 328
Lack of effort on the part of managers 3.6189 .88370 328
Work diversification 3.7896 1.07300 328
Work load 3.7043 1.20437 328
Constant dialogue with borrower 4.2835 .99330 328
Borrower to made more accountable 3.7530 .82580 328
Lok adalat 3.3780 .87633 328
Governance in corporate 3.1463 1.05357 328
Debt recovery 3.8201 .83937 328
Tribunal 3.6341 .55877 328
Compromise settlement 4.1098 .92212 328
Securitization of assets 4.7470 .43542 328

The next 4 questions were rated on a scale of 1 Table 4. KMO and Bartlett‟s test
to 5 with rank 1 being not important.
After analyzing the results obtained it can be KMO measure .614
concluded that borrowers‟ total income (4.74), Bartlett‟s test of
Approx. Chi-Square 16189.274
borrowers‟ creditworthiness (4.56) and previous Df 1275
sphericity
credit records of the borrower (4.38) are important Sig. .000
factors that are taken into consideration while
approving a loan. After analyzing the results of a KMO and Bartlett‟s test measures the sampling
question used in questionnaire it was identified that adequacy. For satisfactory factor analysis, the value
lack of frequent interaction with borrowers (4.3), of the KMO test should be greater than 0.50. The
manipulation by the borrowers (4.2) industrial result obtained from Table 4 shows that the KMO
problem (3.9) and death of the key person (3.8) measure is 0.614. The result shows that the factor
could be the possible cause of non-performing analysis investigation is satisfactory. Bartlett‟s test is
assets. It was concluded from results obtained from another step of measuring the quality of the
a question asked that efforts to reduce cost (3.9), relationship among various variables or factors.
work diversification (3.8) and workload (3.7) came From Table 4 it can be analyzed that Bartlett‟s trial
up as the main reasons which hinder the monitoring of sphericity is critical and have a likelihood of
of non-performing loans. To reduce NPAs in public under 0.05. From Figure 5 it can be analyzed that the
and private sector banks in India, the possible curve begins to flatten between factors 13 and 15.
measures are securitization of assets (4.74), constant Considering the fact that factor 15 has an eigenvalue
dialogue with the borrower (4.3) and compromise of less than 1 only 13 factors have been selected.
settlement (4.1). This was interpreted with the help
of result obtained from a question.

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Figure 5. Scree plot

6. CONCLUSION income, creditworthiness, and previous credit

records or loan settlement history should be taken
The study shows that there is remarkable progress into consideration while sanctioning a loan. Some of
in both the selected major public and private sector the reasons for NPA are lack of frequent interaction
banks during the study period. In terms of overall or follow-up with borrowers, manipulation of
group performance and performance consistency income or financial statement by borrowers,
based on CAMEL‟s ratings, it is observed that as a industrial problem and death of earning member of
whole the selected public sector banks performed the family. Factors like reducing employees to cut
better than selected private sector banks. PSBs in costs, work diversification, increased workload and
India should be more efficient in their overall asset lack of efforts on the part of credit managers or
management policy, employee performance, cost branch managers are the factors that could hinder
control and should have more customer-friendly the effective sanction and monitoring of loans.
banking operations to keep pace with the Important measures for reducing NPAs are a
challenging performance of the private sector banks constant dialogue with borrowers, lok adalat,
in India as well as to compete with the global compromise settlements and securitization of
players. Some of the variables that may affect assets.
non-performing assets are kind of advance, the
credit value of borrowers, collateral security, 7. RESEARCH LIMITATIONS
absence of legitimate observing, inadequacy in credit
assessment standard, death of earning member of The analysis predominantly focuses on northern
family and business disappointment/absence of India and selected a limited number of banks in this
entrepreneurial information on borrower‟s side. The area. The result may change if the investigation is
present system of processing requests for loans by reached out to different areas of India.
high net worth individuals/corporate houses is The paper is an endeavor to recognize if there
fraught with loopholes, which are easily exploited by exists any noteworthy dissimilarity in the variables
unscrupulous companies in collusion with corrupt influencing NPAs public and private sector banks in
bank officials. The banks have not correctly India and will help in framing up a model for
implemented the relevant information technology powerful administration of NPAs by Indian banks.
tools facilitating the Basel II/III norms for risk The paper is an endeavor to recognize if there
management, thus leading to regulatory failures. The exists any noteworthy dissimilarity in the variables
loan having a higher possibility of non-performing influencing NPAs in financial institutions in India
assets is personal loans, housing loans, and and will help in framing up a model for powerful
education loans. The factors like borrowers‟ total administration of NPAs by Indian banks.

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