A COMPERATIVE ANALYSIS OF NON PERFORMING ASSETS OF LEADING PUBLIC SECTOR BANKS IN INDIA
Pranjal1
1Resource Person , B R Ambedkar Bihar University, Muzaffarpur, Bihar, India Dr. Kishore Parth2
2Assistant Professor, L. N. Mishra College of Business Management, Muzaffarpur, Bihar, India
Abstract- Indian banks can be broadly divided into three types: private banks, specialised financial institutions, and nationalised (government-owned) banks. Nonperforming assets are a problem that both public and private sector banks are now dealing with. One of the most vital signs of a bank's financial health is the quality of its assets. In addition to endangering the quality of assets and the viability of banks, NPAs have an impact on liquidity and profitability. The increasing of non-performing assets has been a significant challenge for the Indian banking system (NPAs). The profitability of banks is directly impacted by the increase of the NPA. The study article makes an effort to assess various non-performing asset ratios and contrast the ratios of banks in the public and private sectors.
Keywords: Non Performing Assets, Gross Non Performing Assets, Net Non Performing Assets, Public Sector Bank, Private Sector Bank.
1. INTRODUCTION
The foundation of India is its banking industry. It depicts the nation's economic and financial situation. The main job of a bank is to accept deposits from both individual and corporate clients as well as to lend money to a variety of industries and sectors, including agriculture, business, housing, and others. Receiving a deposit often carries no risk because the banker is responsible for paying it back whenever it is requested. On the other hand, because there is no guarantee that the loan will be repaid, lending funds always carry a high level of risk. Banks have recently become much more careful when making loans out of concern for the rise in non-performing assets. The mortgage assets of the borrowers become NPAs if they are unable to pay the principle and interest within 90 days. Such assets are unable to bring in any money for the banks.
2. TYPES OF NON PERFORMING ASSETS (NPAS)
(i) Gross Non-Performing Assets (ii) Net Non-Performing Assets
(i) Gross Non-Performing Assets- Gross Non-Performing Assets:
Gross NPAs are the sum total of all loan assets that are classified as NPAs as per RBI guidelines as on balance sheet date.
It consists of all Non-Standard assets like as sub-standard, doubtful and loss assets.
It can be calculated with the help of following ratios: Gross NPAs Ratio=Gross NPAs/Gross Advance
*100
(ii) Net Non-Performing Assets- Net NPAs are those type of NPAs in which the bank has deducted the provision for uncertain and unpaid debts.
Net NPA is obtained by reducing the provision from gross NPAs and show the actual burden of banks. It can be calculated by following.
Net NPAs=Gross NPAs-Provision on Gross Advances
3. CATEGORIES OF NON-PERFORMING ASSETS
On the periods basis Non-Performing Assets are classified into 3 categories:
(i) Sub-standard Assets (ii) Doubtful Assets (iii) Loss Assets
(i) Sub-standard Assets-A substandard asset is asset of NPA for a period less than or equal to 12 months.
(ii) Doubtful Assets-A Doubtful asset is asset of NPA for more than 12 months.
(iii) Loss Assets-A loss asset is type of asset of NPA which losses has been identified by the bank authority, auditors or the RBI but the loss amount has not been written off fully.
4. REVIEW OF LITERATURE
Prashanth K Reddy (2002) has done the study of NPAs in banks in international context in Asian country, India, China, Thailand, Korea and Japan that given a lot of importance to the economic variables. He has done a comparative study by taking nine years gross NPAs and Net NPAs. He conjointly nominative the similarities, dissimilarities and remedial measures of NPAs in international context.
MS. Asha Singh (2013) has studied ten years gross NPAs and Net NPAs of Indian commercial banks. She expressed that the NPAs reflects the performance of the banks .The extent of NPAs has relatively higher in public sector banks .In step with her study NPAs thought-about as a chief indicator of credit risk. So, to boost the potency and gain, the NPAs got to be organized in correct approaches. It is extremely not possible to possess a zero share NPAs. However a minimum Indian banks ought to beware to confirm that they offer loan to responsible customers.
Krishna Murari (2014) has discovered NPAs of 39 banks i.e., 13 public sector banks, 13 old private sector banks, 13 new private sector banks, that there is increase in gross and net NPAs for general public and personal sectors over the amount of study. It found on the idea of the study that there is vital improvement within the management of NPAs of public sector banks in India because the quantitative relation of gross NPAs to total advances declined .This study finally discovered that the prudent and provisioning norms and their initiatives taken by the regulative bodies have pressurised banks to boost their performance and consequently resulted in reduction in NPAs.
N.A Kavitha, M. Muthu Meenakshi (MAR 2016) have investigated that the extent of NPA was relatively very high in public sector banks. Although various steps have been taken by Govt. to reduce the NPAs but still a lot of needs to be done to curb this problem. To improve the efficiency and profitability, the NPAs have to be scheduled; various steps have been taken by Govt. to reduce the NPAs. They also mentioned in this research is that the problem of NPAs needs lots of serious efforts otherwise NPAs will keep killing the profitability of banks which is not good for the growing Indian economy at all.
K. Prasanath Kiran & T. Mary jones (2016) Their study examined the NPA of top 5 public sector banks in India from the year 2005 to 2014.It is cleared from the study that public sector banks NPAs are going on increasing at increasing rate. They took hypothesis for this comparison. They also used correlation and regression analysis for knowing the result of NPAs in selected public sector banks in India.
Dr. Kapil K Dave (2016) The e comparative study of NPA of public and private sector banks have concluded that each bank have its own independence credit rating agency which should evaluate the financial capacity of the borrower before than credit facility. An effective committee can be formed for management of NPA comprising of financial experts who have wide knowledge in this field. NPA can be considered as a crucial rating factors for any bank; it should regularly evaluate the financial condition of the client.
Vivek Rajbahadur Singh (2016) this research paper found that NPA is just not only problem for the banks but for economy too. It studies the status of NPAs of Indian scheduled commercial banks in India. It also studies the impact of NPAs on banks and also know the recovery of NPAs through various channels. It also gives appropriate suggestions to avoid future NPAs and to manage existing NPAs in banks. The study shows that extent of NPA is comparatively very high in public sector banks. NPAs level of our banks is still high as compared to foreign banks. It is not at all possible to have zero NPAs. The bank management should speed up the recovery process.
Harani B, Subramanyam Mutyala (DEC 2019) Their investigations indicates that NPAs problem is a very serious concern and it‟s an endless battle in India because it destroys the sound financial position of them. This problem has to be addressed in such a way that it should not impact on the financial position and image of the bank.
This study analysis the sector-wise classification NPAs and loan assets of public and private sector banks. It also examines the gross NPAs, gross advance and gross NPAs ratio of public and private sector banks in India. This study also reveals that non –priority sector loans have worsened NPAs which cause headache for public sector banks.
B. Senthil Arasu, P. Sridevi, P.
Nageswari, R. Ramya (2019) This study found out that among the public sector banks the average gross and Net NPAs of SBI, PNB, BOI is recorded above the overall average of the sample banks. The level of gross and net NPAs of public and private sector banks increased gradually on year from 2014 to 2018. So, it recommended to the regulators and respective bank officials take the necessary steps to reduce the NPAs and improve the recovery mechanism. Also found that there is a significant positive relationship between gross NPA and Net NPA of public and private sector banks and also negatively significant relationship between gross and net NPA with ROA of public and private sector banks.
Mr. Abid Husain, G. Kadiw and Dr.
Rasikbhai, I. Prajapati (FEB 2020) There is difference among the NPAs in both the public and private sector banks. This study reveals that types of banks and sector-wise NPAs do not have combine effect over total NPAs of the banks. Study result shows that in public sector banks category of industry of both the priority and non-priority spotted higher NPAs. Average NPAs for the study period of all the selected private banks are less than 5% and average NPAs for the study period of major all the selected public sector banks are more than 5%.It is found in the present study that asset quality and efficiency of debt coverage of private sector banks are better than public sector banks.
In comparison to private sector banks, public sector banks registered higher NPAs.
Girnara Mona Rameshbhai (JULY 2020) took 5 public banks and 5 private banks for study of NPAs. This research paper considered data of public sector banks and private sector banks of last 5years. This research paper attempts to evaluate various ratios of NPAs on the basis of secondary data. This research paper gives conceptual idea about meaning of NPAs, Various ratios related to NPAs and also compare NPAs in public sector banks and private sector banks. After the comparison it is found that NPAs is high in public sector banks as compare to private sector banks. Amount of gross NPAs and Net NPAs are high in public sector bank with respect to private sector banks. I found that more amount of NPAs is negatively affecting to profitability of bank.
Rishabh Adey, Deevanshu Yash Goyal, MD. Nizam Siddiqui, Lata dhruw (2020) this study found that NPAs drain the banks‟ capital and weaken its financial power. Public sector banks are more on the NPAs basis relative to private sector banks.
The bank and financial institutions should be more constructive in pursuing a realistic and systematic strategy of NPA management where priority is given to prevention of NPAs. Public sector banks must be cautious in preventing any account being an NPAs by effectively taking adequate preventive steps.
5. METHODOLOGY
(i) Sources of Data- The present study based on secondary data. These data have been collected from different sources such as:
Annual reports of SBI, AXIS Bank, RBI, PNB, HDFC Bank
Press Release Report of SBI, AXIS Bank, PNB, HDFC Bank and related subject matter and related website of public and private sector banks in India.
(ii) Sample Design- The public and private sector bank for the study were selected based on convenience sampling method.
For these 2 public sectors and 2 private sector banks in India were taken for the study on the basis of market capitalization.
The study period is from 2016 to 2020. The following are the selected sample banks:
Public sector bank: State Bank of India (SBI), Punjab National Bank (PNB)
Private sector bank: AXIS Bank, HDFC Bank
(iii) Statistical Tools Used
Mean has been calculated to know the average performance and to know the stability in the performance of the banks to find out the relationship between NPA and other key parameters of bank.
Correlation has also used to check the relationship between Net NPA and Net Profit and Return on Assets (ROA) of the selected public and private sector banks in India.
6. DATA ANALYSIS AND INTERPRETATION
Table 1 % Gross NPA of selected public and private sector banks in India from 2016 to 2020
Interpretation- Table-1 reveals the % of Gross NPA of selected public sector and private sector banks in India. PNB has highest Mean ratio of 14.7%, followed by SBI with 7.598%.
HDFC has lowest Mean ratio of 0. 984%. AXIS Bank have 4.786%Mean ratio. This shows that there is a consistency in Gross NPA to gross advances ratio or % of Gross NPA ratio.
RELATIONSHIP BETWEEN NET PROFIT AND NET NPA OF SELECTED BANKS
Table 2 Net Profit and Net NPA of selected public sector banks in India from 2016 to 2020
Interpretation- Table 2 shows that when NPA increases at increasing rate, then there will be a downfall in the Net profit of the banks. It is cleared from the above table that the NPA of SBI increases 55,807.02 Cr to 65,894.74 Cr from 2016 to 2019 i.e., 18.08%. But as compare to 2020-year NPA is decreased at7.05%. In AXIS Bank NPA increased from the year 2016 to 2019 from 2,522.14Crto 11,275.60 Cr. In the year 2020 NPA is decreased 1915.19 Cr as compare to the previous year .The mean of Net profit of SBI is more as compare to AXIS Bank and Average NPA is also high in case of SBI i.e.,69,202.60 Cr.
(i) Relationship of Net Profit and Net NPA of SBI
Interpretation- The above diagram shows Net profit and Net NPA of SBI from the period 2016 to 2020. It showing that when Net NPA of SBI increased then Net Profit will be decreased. In the year 2017-18 there is highest Net NPA of 110854.7 Cr. over all of the year. Due to highest NPA, Net Profit of this year went to negative of 6547.45 Cr.
(ii) Relationship of Net NPA and Net Profit of PNB
Interpretation- The above diagram indicates the relationship between Net NPA and Net Profit of the PNB. According to the directions it shows that there is an inverse relationship between Net NPA and Net Profit of the bank. When NPA of the bank increases, then the profit of the bank going to decrease. In the year 2018-19, 2017-18 and 2015-16 the Net Profit is showing negative figures. In the year 2016-17 it has positive figure of NPA i.e., 1324.8Cr.
RELATIONSHIP OF NET PROFIT AND NET NPA OF PRIVATE SECTOR BANKS
Table 3 Net Profit and Net NPA of selected Private sector banks in India from 2016 to 2020
Interpretation- Table:3 shows that the Net Profit (in Cr.) and Net NPA (in Cr.) of 2private sector banks. Such as AXIS BANK and HDFC BANK. The data of AXIS Bank indicates that the net profit and Net NPA are fluctuate over the 5years.Initially increased then decreased then again increased then again decreased and so on.
But in HDFC bank the Net Profit and Net NPA are increases at increasing rate over the 5 years. The Mean value of Net profit is highest in HDFC Bank with 18333.62 Cr.
and Mean value of NPA is highest in AXIS bank i.e., 10569.56 Cr.
(i) Relationship of net NPA and Net profit of AXIS Bank
Interpretation-The above chart indicates the Net NPA and Net Profit of AXIS bank.
Here Net NPA are increased over the 5 years at an increasing rate. In the year 2016-17 Net NPA showing highest value with 16591.71 Cr. and Net Profit showing lowest value i.e., 275.68 Cr. In the year 2019-20,
as NPA increased, the Net profit of the bank declined but at minimum rate. Thus, it shows that there is a negative relationship between Net NPA and Net profit of the bank.
7 CONCLUSION
The conclusion that NPA is one of the crucial indicators of the financial stress of any Indian banks. One of the main problems facing the banking industry is NPA. While it is challenging to totally eradicate bank NPA, we should endeavour to do so in some significant measure.
Following the comparison, it was discovered that public sector banks, such as Punjab National Bank (PNB) in India, have higher NPA levels. As a result, PNB's profitability has been significantly impacted. With HDFC Bank, the ROI% is higher and the NPA% is also lower. It is evident from this comparison of a few Indian public and private sector banks that HDFC Bank is good for NPA due to its low Gross NPA%, low Net NPA%, and greater ROI%
throughout the course of a five-year research. While it is challenging to totally eradicate bank NPA, we should endeavour to do so in some significant measure. As a result, it is a significant problem for both the government and public sector banks.
The Reserve Bank of India (RBI) has now been given more authority to take steps against NPA in banks. Every public sector bank in India needs to pay more attention to its NPA. The bank must enhance both their credit and repayment structures in order to eliminate NPA. It also emphasises the strategy for reducing default risk. The bank must adhere to all governmental credit policies and act swiftly to address
NPA. The bank also made improvements to its NPA management system.
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