COMPARATIVE ANALYSIS ON NON PERFORMING ASSETS OF PRIVATE AND PUBLIC SECTOR

BANKS

Presented ByAnindya Sankar Kundu

OBJECTIVES OF THE STUDY Primary Objectives:• To evaluate Gross NPA and Net NPA in different banks.• To study the past trends of NPA. Secondary Objectives:• To calculate the weighted of NPA in risk management in Banking• To analyze financial performance of banks at different level of NPA

RESEARCH METHODOLOGY• In this project Descriptive research methodologies were use.• At the first stage theoretical study is attempted.• At the second stage Historical study is attempted.• At the Third stage Comparative study of NPA is undertaken.

Sampling Methods• To prepare this Project we have taken five banks from public sector as well

as five banks from private sector.

Limitations of the study• Since the Indian banking sector is so wide so it was not possible for me to

cover all the banks of the Indian banking sector.

Introduction• NPA. The three letters Strike terror in banking

sector and business circle today. NPA is short form of “Non Performing Asset”.. A ‘non-performing asset’ (NPA)

was defined as a credit facility in respect of which

the interest and/ or instalment of principal has

remained ‘past due’ for a specified period of time.

CATEGORIES OF NPAs

• Substandard Assets – Which has remained NPA for a period less than or equal to 12 months.

• Doubtful Assets – Which has remained in the sub-standard category for a period of 12 months

• Loss Assets – where loss has been identified by the bank or internal or external auditors or the RBI inspection but the amount has not been written off wholly.

Provisional Norms:

Asset Classification Provision requirements

Standard assets (a) direct advances to agricultural & SME sectors at 0.25 per cent;(b) residential housing loans beyond Rs. 20 lakh at 1 per cent;(c) advances to specific sectors, i.e., personal loans (including credit card receivables), loans and advances qualifying as Capital Market exposures, Commercial Real Estate loans etc. at 2 per cent(d) all other advances not included in (a), (b) and (c) above, at 0.40 percent.

Substandard assets 10 per cent of the total out standings for substandard assets.

Contd…Asset Classification Provision requirements

Doubtful assets 20% - 50% of the secured portion depending on the age of NPA,

and 100% of the unsecured portion.

Loss assets It may be either written off or fully provided by the bank. The

entire asset should be written off.

FACTORS FOR RISE IN NPAsEXTERNAL FACTORS

– Ineffective recovery tribunal – Natural calamities– Industrial sickness

INTERNAL FACTORS– Inappropriate technology– Poor credit appraisal system– Absence of regular industrial visit

Types of NPA• A] Gross NPA:• Gross NPA reflects the quality of the loans made by banks. It consists of all the

non-standard assets like as sub-standard, doubtful, and loss assets. It can be calculated with the help of following ratio:

• Gross NPAs Ratio Gross NPAs Gross Advances • B] Net NPA:• Net NPAs are those type of NPAs in which the bank has deducted the provision

regarding NPAs. It can be calculated by following • Net NPAs Gross NPAs – Provisions • Gross Advances - Provisions •

Impact of NPA• Profitability• Liquidity• Involvement of management• Credit loss

DATA ANALYSIS AND

INTERPRETATION

ICICI HDFC AXIS INDUSIND KOTAK0

50000

100000

150000

200000

250000

DEPOSIT

INVESTMENT

ADVANCES

DEPOSIT-INVESTMENT-ADVANCES (RS.CRORE) of both sector banks and comparison among them, year 2008-09

Gross NPA and Net NPA Of different Public Sector banks in the year 2007-08

BANK

GROSS NPA

NET NPA

BOB 1.10 0.27

BOI 1.08 0.33

DENA 1.48 0.56

PNB 1.67 0.38

UBI 1.34 0.10

DENA PNB BOI BOB UBI0

0.20.40.60.8

11.21.41.61.8

GROSS NPANET NPA

Gross NPA and Net NPA Of different Private Sector banks in the year 2007-08

BANK

GROSS NPA

NET NPA

AXIS 0.45 0.23

HDFC 0.68 0.22

ICICI 1.90 0.87

KOTAK 1.55 0.98

INDUSIND 1.69 1.25

INDUSIND KOTAK ICICI HDFC AXIS0

0.20.40.60.8

11.21.41.61.8

2

GROSS NPA

NET NPA

ICICI IN-DUSIND

KOTAK HDFC AXIS BOI BOB UBI DENA PNB0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

Comparison of GROSS NPA with Public and Private sectors banks for the year 2007-08 

Comparison of GROSS NPA with all banks for the year 2007-08. The growing NPAs affect the health of banks, profitability and efficiency. In the long run, it eats up the net worth of the banks. We can say that NPA is not a healthy sign for financial institutions. Here we take all the ten banks gross NPA together for better understanding. Average of these ten banks gross NPAs is 1.29 as percentage of total assets. So if we compare in private sector banks AXIS and HDFC Bank are below average of all banks and in public sector BOB and BOI. Average of these five private sector banks gross NPA is 1.25 and average of public sector banks is 1.33. Which is higher in compare of private sector banks.

COMPARISON OF NET NPA WITH PUBLIC AND PRIVATE SECTORS BANKS FOR THE YEAR 2007-08

ICICI INDUSIND KOTAK HDFC AXIS BOI BOB UBI DENA PNB0

0.2

0.4

0.6

0.8

1

1.2

1.4

Comparison of NET NPA with all banks for the year 2007-08. Average of these ten bank’s net NPA is 0.56. And in the public sector banks all these five banks are below this. But in private sector banks there are three banks are above average. The difference between private and public banks average is also vast. Private sector banks net NPA average is 0.71 and in public sector banks it is 0.41 as percentage of total assets. As we know that net NPA shows actual burden of banks. IndusInd bank has highest net NPA figure and HDFC Bank has lowest in comparison.

PRIORITY SECTOR PRIVATE SECTOR BANK

BANK AGRI( 1 )

SMALL( 2 )

OTHERS( 3 )

PRIORITYSECTOR( 1+2+3 )

NON-PRIORITY

AXIS 109.12 14.76 86.71 210.59 275.06

HDFC 36.12 110.56 47.70 194.41 709.23

ICICI 981.85 23.35 354.13 1359.34 6211.12

KOTAK 10.00 33.84 4.04 47.87 405.20

INDUSIND 30.44 3.18 30.02 63.64 328.67

TOTAL 1167.53 185.69 522.60 1875.85 7929.28

AXIS HDFC ICICI KOTAK INDUSIND0

1000

2000

3000

4000

5000

6000

7000

PRIORITY

NON-PRIORITY

BANK PRIORITY SECTOR(ADVANCED RS.CRORE )

NPA

BOB 5469 350

BOI 3269 325

DENA 1160 106

PNB 3772 443

UBI 1924 197

BOB BOI DENA PNB UBI0

1000

2000

3000

4000

5000

6000

PRIORITY

NPA

PRIORITY SECTOR IN PUBLIC SECTOR BANK

compare the all public sector and private sector banks on the basis of priority and non-priority sector

SECTOR

PUBLIC SECTOR NEW PRIVATE

2007-08 2008-09 2007-08 2008-09

PRIORITY 22954 25287 1468 2080

PUBLIC 490 299 3 0

NON PRT 15158 14163 4800 8339

TOTAL 38602 39749 6271 10419

Here, there are huge differences between private and public sector banks NPA. There is increase in new private sector banks NPA of Rs.4148 cr in 2008-09 which is almost 66% rise than previous year. In public sector banks the numbers are not increased like private sector banks.

SuggestionsAvailability of historical dataAvailability of historical data is paramount of important in preparation of a credit proposal. So banks should have historical data base to extract past records as and when required.Market Intelligence systemMIS information should be available for various reasons when taking creditdecisions. Ex: To rate a customer, to extract performance ratiosSpeedy legal actionsWhen all possible attempts for recovery is failed only option is to proceed with legal action and this should be speedy otherwise this will be costly.Rewarding staffIntroducing a staff rewarding/incentive scheme will also support in reducing NPAs. It should be noted rewarding staff will be less costly rather than spending