Term Paper Banking and Insurance

8/14/2019 Term Paper Banking and Insurance

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Miss Razia

pallavi joshi

Rol

l no. 12

BBA

(hons) 5th sem.

INTRODUCTIONINTRODUCTION

The accumulation of huge non-performing assets in banks has assumedThe accumulation of huge non-performing assets in banks has assumed

great importance. The depth of the problem of bad debts was first realized only in earlygreat importance. The depth of the problem of bad debts was first realized only in early

1990s. The magnitude of NPAs in banks and financial institutions is over Rs.11990s. The magnitude of NPAs in banks and financial institutions is over Rs.1, 50,000, 50,000

crores.crores.

While gross NPA reflects the quality of the loans made by banks, net NPAWhile gross NPA reflects the quality of the loans made by banks, net NPA

shows the actual burden of banks. Now it is increasingly evident that the majorshows the actual burden of banks. Now it is increasingly evident that the major

defaulters are the big borrowers coming from the non-priority sector. The banks anddefaulters are the big borrowers coming from the non-priority sector. The banks and

financial institutions have to take the initiative to reduce NPAs in a time bound strategicfinancial institutions have to take the initiative to reduce NPAs in a time bound strategic

approach.approach.

Public sector banks figure prominently in the debate not only because theyPublic sector banks figure prominently in the debate not only because they

dominate the banking industries, but also since they have much larger NPAs compareddominate the banking industries, but also since they have much larger NPAs compared

with the private sector banks. This raises a concern in the industry and academiawith the private sector banks. This raises a concern in the industry and academia

because it is generally felt that NPAs reduce the profitability of a banks, weaken itsbecause it is generally felt that NPAs reduce the profitability of a banks, weaken its

financial health and erode its solvency.financial health and erode its solvency.

For the recovery of NPAs a broad framework has evolved for theFor the recovery of NPAs a broad framework has evolved for the

management of NPAs under which several options are provided for debt recovery andmanagement of NPAs under which several options are provided for debt recovery and


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restructuring. Banks and FIs have the freedom to design and implement their ownrestructuring. Banks and FIs have the freedom to design and implement their own

policies for recovery and write-off incorporating compromise and negotiatedpolicies for recovery and write-off incorporating compromise and negotiated

settlements.settlements.

Introduction to NPA

The three letters NPA Strike terror in banking sector and business circle today. NPA is

short form of Non Performing Asset. 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. The recovery of loan has always been

problem for banks and financial institution. To come out of these first we need to think is

it possible to avoid NPA, no can not be then left is to look after the factor responsible for

it and managing those factors.

Definitions:Definitions:

An asset, including a leased asset, becomes non-performing when it ceases to

generate income for the bank.

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.

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. Accordingly, with effect

from March 31, 2004, a non-performing asset (NPA) shall be a loan or an advance

where;

Interest and/ or instalment of principal remain overdue for a period of

more than 90 days in respect of a term loan,


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The account remains out of order for a period of more than 90 days, in

respect of an Overdraft/Cash Credit (OD/CC),

The bill remains overdue for a period of more than 90 days in the case of

bills purchased and discounted,

Interest and/or instalment of principal remains overdue for two harvest

seasons but for a period not exceeding two half years in the case of an

advance granted for agricultural purposes, and

Any amount to be received remains overdue for a period of more than 90days in respect of other accounts.

As a facilitating measure for smooth transition to 90 days norm, banks have

been advised to move over to charging of interest at monthly rests, by April

1, 2002. However, the date of classification of an advance as NPA should not

be changed on account of charging of interest at monthly rests. Banks

should, therefore, continue to classify an account as NPA only if the interest

charged during any quarter is not serviced fully within 180 days from the end

of the quarter with effect from April 1, 2002 and 90 days from the end of thequarter with effect from March 31, 2004.

NON PERFORMING ASSETS (NPA)

WHAT IS A NPA (NON PERFORMING ASSETS)?

Action for enforcement of security interest can be initiated only if the secured asset is

classified as Nonperforming asset.

Non performing asset means an asset or account of borrower ,which has been

classified by bank or financial institution as sub standard , doubtful or loss asset, in


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accordance with the direction or guidelines relating to assets classification issued

by RBI .

An amount due under any credit facility is treated as past due when it is not been

paid within 30 days from the due date. Due to the improvement in the payment and

settlement system, recovery climate, up gradation of technology in the banking system

etc, it was decided to dispense with past due concept, with effect from March 31,

2001. Accordingly as from that date, a Non performing asset shell be an advance where

i. Interest and/or installment of principal remain overdue for a period of more than

180 days in respect of a term loan,

ii. The account remains out of order for a period of more than 180 days ,in respect

of an overdraft/cash credit (OD/CC)

iii. The bill remains overdue for a period of more than 180 days in case of bill

purchased or discounted.

iv. Interest and/or principal remains overdue for two harvest season but for a

period not exceeding two half years in case of an advance granted for

agricultural purpose ,and

v. Any amount to be received remains overdue for a period of more than 180 days

in respect of other accounts

With a view to moving towards international best practices and to ensure greater

transparency, it has been decided to adopt 90 days overdue norms for identification

of NPAs ,from the year ending March 31,2004,a non performing asset shell be a

loan or an advance where;

i. Interest and/or installment of principal remain overdue for a period of

more than 90 days in respect of a term loan,

ii. The account remains out of order for a period of more than 90 days ,in

respect of an overdraft/cash credit (OD/CC)

iii. The bill remains overdue for a period of more than 90 days in case of bill

purchased or discounted.


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iv. Interest and/or principal remains overdue for two harvest season but for

a period not exceeding two half years in case of an advance granted for

agricultural purpose ,and

v. Any amount to be received remains overdue for a period of more than 90

days in respect of other accounts

Out of order

An account should be treated as out of order if the outstanding balance remainscontinuously in excess of sanctioned limit /drawing power. in case where the out

standing balance in the principal operating account is less than the sanctioned

amount /drawing power, but there are no credits continuously for six months as on the

date of balance sheet or credit are not enough to cover the interest debited during the

same period ,these account should be treated as out of order.

Overdue

Any amount due to the bank under any credit facility is overdue if it is not paid

on due date fixed by the bank.

Types of NPATypes of NPA

A] Gross NPAA] Gross NPA

B] Net NPAB] Net NPA

A] Gross NPA:A] Gross NPA:

Gross NPAs are the sum total of all loan assets that are classified as NPAs as per RBI

guidelines as on Balance Sheet date. Gross NPA reflects the quality of the loans


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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 NPAsGross Advances

B] Net NPA:B] Net NPA:

Net NPAs are those type of NPAs in which the bank has deducted the provision

regarding NPAs. Net NPA shows the actual burdenof banks. Since in India, bankbalance sheets contain a huge amount of NPAs and the process of recovery and write

off of loans is very time consuming, the provisions the banks have to make against the

NPAs according to the central bank guidelines, are quite significant. That is why the

difference between gross and net NPA is quite high.

It can be calculated by following_

Net NPAs Gross NPAs Provisions

Gross Advances - Provisions

Categories of NPAsCategories of NPAs

Standard Assets:Standard Assets:

Standard assets are the ones in which the bank is receiving interest as well as the

principal amount of the loan regularly from the customer. Here it is also very important

that in this case the arrears of interest and the principal amount of loan does not exceed

90 days at the end of financial year. If asset fails to be in category of standard asset that

is amount due more than 90 days then it is NPA and NPAs are further need to classify

in sub categories.


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Banks are required to classify non-performing assets further into the

following three categories based on the period for which the asset has remained non-

performingand the realisabilityof the dues:

( 1 ) Sub-standard Assets( 1 ) Sub-standard Assets

( 2 ) Doubtful Assets( 2 ) Doubtful Assets

( 3 ) Loss Assets( 3 ) Loss Assets

( 1 ) Sub-standard Assets:--( 1 ) Sub-standard Assets:--

With effect from 31 March 2005, a sub standard asset would be one, which has

remained NPA for a period less than or equal to 12 month. The following features are

exhibited by sub standard assets: the current net worth of the borrowers / guarantor orthe current market value of the security charged is not enough to ensure recovery of the

dues to the banks in full; and the asset has well-defined credit weaknesses that

jeopardise the liquidation of the debt and are characterised by the distinct possibility that

the banks will sustain some loss, if deficiencies are not corrected.

( 2 ) Doubtful Assets:--( 2 ) Doubtful Assets:--

A loan classified as doubtful has all the weaknesses inherent in assets that were

classified as sub-standard, with the added characteristic that the weaknesses make

collection or liquidation in full, on the basis of currently known facts, conditions and

values highly questionable and improbable.

With effect from March 31, 2005, an asset would be classified as doubtful if it remained

in the sub-standard category for 12 months.

( 3 ) Loss Assets:--Loss Assets:--

A loss asset is one which considered uncollectible and of such little value that its

continuance as a bankable asset is not warranted- although there may be some salvage

or recovery value. Also, these assets would have been identified as loss assets by the

bank or internal or external auditors or the RBI inspection but the amount would not

have been written-off wholly.


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Impact of NPAImpact of NPA

Profitability:-Profitability:- NPA means booking of money in terms of bad asset, which

occurred due to wrong choice of client. Because of the money getting blocked

the prodigality of bank decreases not only by the amount of NPA but NPA lead to

opportunity cost also as that much of profit invested in some return earning

project/asset. So NPA doesnt affect current profit but also future stream of profit,

which may lead to loss of some long-term beneficial opportunity. Another impact

of reduction in profitability is low ROI (return on investment), which adversely

affect current earning of bank.

Liquidity:-Liquidity:-Money is getting blocked, decreased profit lead to lack of enough cash at hand which

lead to borrowing money for shot\rtes period of time which lead to additional cost to the

company. Difficulty in operating the functions of bank is another cause of NPA due to

lack of money. Routine payments and dues.

Involvement of management:-Involvement of management:-Time and efforts of management is another indirect cost which bank has to bear due to

NPA. Time and efforts of management in handling and managing NPA would have

diverted to some fruitful activities, which would have given good returns. Now days

banks have special employees to deal and handle NPAs, which is additional cost to the

bank.

Credit loss:-Credit loss:-Bank is facing problem of NPA then it adversely affect the value of bank in terms of

market credit. It will lose its goodwill and brand image and credit which have negative

impact to the people who are putting their money in the banks .


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REASONS FOR NPA:REASONS FOR NPA:

Reasons can be divided in to two broad categories:-

A] Internal Factor

B] External Factor

[A] Internal[A] InternalFactors:-Factors:-

Internal Factors are those, which are internal to the bank and are controllable by banks.

Poor lending decision:

Non-Compliance to lending norms:

Lack of post credit supervision:

Failure to appreciate good payers:

Excessive overdraft lending:

Non Transparent accounting policy:

[B] External[B] ExternalFactors:-Factors:-

External factors are those, which are external to banks they are not controllable by

banks.


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Socio political pressure:

Chang in industry environment:

Endangers macroeconomic disturbances:

Natural calamities

Industrial sickness

Diversion of funds and willful defaults

Time/ cost overrun in project implementation

Labor problems of borrowed firm

Business failure

Inefficient management

Obsolete technology

Product obsolete

Preventive MeasurementPreventive Measurement forforNPANPA

Early Recognition of the Problem:-Early Recognition of the Problem:-


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Invariably, by the time banks start their efforts to get involved in a revival process, its

too late to retrieve the situation- both in terms of rehabilitation of the project and

recovery of banks dues. Identification of weakness in the very beginning that is : When

the account starts showing first signs of weakness regardless of the fact that it may not

have become NPA, is imperative. Assessment of the potential of revival may be done

on the basis of a techno-economic viability study. Restructuring should be attempted

where, after an objective assessment of the promoters intention, banks are convinced

of a turnaround within a scheduled timeframe. In respect of totally unviable units as

decided by the bank, it is better to facilitate winding up/ selling of the unit earlier, so as

to recover whatever is possible through legal means before the security position

becomes worse.

Identifying Borrowers with Genuine Intent:-Identifying Borrowers with Genuine Intent:-

Identifying borrowers

with genuine intent from those who are non- serious with no commitment or stake in

revival is a challenge confronting bankers. Here the role of frontline officials at the

branch level is paramount as they are the ones who has intelligent inputs with regard to

promoters sincerity, and capability to achieve turnaround. Base don this objective

assessment, banks should decide as quickly as possible whether it would be worthwhile

to commit additional finance.

In this regard banks may consider having Special Investigation of all financial

transaction or business transaction, books of account in order to ascertain real factors

that contributed to sickness of the borrower. Banks may have penal of technical experts

with proven expertise and track record of preparing techno-economic study of the

project of the borrowers.

Borrowers having genuine problems due to temporary mismatch in fund flow or

sudden requirement of additional fund may be entertained at branch level, and for this

purpose a special limit to such type of cases should be decided. This will obviate the

need to route the additional funding through the controlling offices in deserving cases,

and help avert many accounts slipping into NPA category.


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Timeliness and Adequacy of response:-Timeliness and Adequacy of response:-

Longer the delay in response, grater the injury to the account and the asset. Time is a

crucial element in any restructuring or rehabilitation activity. The response decided on

the basis of techno-economic study and promoters commitment, has to be adequate in

terms of extend of additional funding and relaxations etc. under the restructuring

exercise. The package of assistance may be flexible and bank may look at the exit

option.

Focus on Cash Flows:-Focus on Cash Flows:-

While financing, at the time of restructuring the banks may not be guided by theconventional fund flow analysis only, which could yield a potentially misleading picture.

Appraisal for fresh credit requirements may be done by analyzing funds flow in

conjunction with the Cash Flow rather than only on the basis of Funds Flow.

Management Effectiveness:-Management Effectiveness:-

The general perception among borrower is that it is lack of finance that leads to

sickness and NPAs. But this may not be the case all the time. Management

effectiveness in tackling adverse business conditions is a very important aspect that

affects a borrowing units fortunes. A bank may commit additional finance to an align

unit only after basic viability of the enterprise also in the context of quality of

management is examined and confirmed. Where the default is due to deeper malady,

viability study or investigative audit should be done it will be useful to have consultant

appointed as early as possible to examine this aspect. A proper techno- economic

viability study must thus become the basis on which any future action can be

considered.

Multiple Financing:-Multiple Financing:-


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A. During the exercise for assessment of viability and restructuring, a Pragmatic

and unified approach by all the lending banks/ FIs as also sharing of all

relevant information on the borrower would go a long way toward overall success

of rehabilitation exercise, given the probability of success/failure.

B. In some default cases, where the unit is still working, the bank should make sure

that it captures the cash flows (there is a tendency on part of the borrowers to

switch bankers once they default, for fear of getting their cash flows forfeited),

and ensure that such cash flows are used for working capital purposes. Toward

this end, there should be regular flow of information among consortium

members. A bank, which is not part of the consortium, may not be allowed to

offer credit facilities to such defaulting clients. Current account facilities may alsobe denied at non-consortium banks to such clients and violation may attract

penal action. The Credit Information Bureau of India Ltd.(CIBIL) may be very

useful for meaningful information exchange on defaulting borrowers once the

setup becomes fully operational.

C. In a forum of lenders, the priority of each lender will be different. While one set of

lenders may be willing to wait for a longer time to recover its dues, another

lender may have a much shorter timeframe in mind. So it is possible that the

letter categories of lenders may be willing to exit, even a t a cost by a

discounted settlement of the exposure. Therefore, any plan for

restructuring/rehabilitation may take this aspect into account.

D. Corporate Debt Restructuring mechanism has been institutionalized in 2001 to

provide a timely and transparent system for restructuring of the corporate debt of

Rs. 20 crore and above with the banks and FIs on a voluntary basis and outside

the legal framework. Under this system, banks may greatly benefit in terms of

restructuring of large standard accounts (potential NPAs) and viable sub-

standard accounts with consortium/multiple banking arrangements.


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For the purpose of analysis and comparison between private sector and public

sector banks, we take five-five banks in both sectors to compare the non performing

assets of banks. For understanding we further bifurcate the non performing assets

in priority sector and non priority sector, gross NPA and net NPA in percentage as

well as in rupees, deposit investment advances. Deposit Investment

Advances is the first in the analysis because due to these we can understand the

where the bank stands in the competitive market. As at end of March 2008, in

private sector ICICI Bank is the highest deposit-investment-advances figures in

rupees crore, second is HDFC Bank and KOTAK Bank has least figures.

In public sector banks Punjab National Bank has highest deposit-investment-

advances but when we look at graph first three means Bank of Baroda and Bank of

India are almost the similar in numbers and Dena Bank is stands for last in public sector

bank. When we compare the private sector banks with public sector banks among

these banks, we can understand the more number of people prefer to choose public

sector banks for deposit-investment. But when we compare the private sector bank

ICICI Bank with the public sector banks ICICI Bank is more deposit-investment figures

and first in the all banks.

There are two concepts related to non-performing assets_ gross and net. Gross refers

to all NPAs on a banks balance sheet irrespective of the provisions made. It consists of

all the non standard assets, viz. Sub standard, doubtful, and loss assets. A loan asset

is classified as sub standard if it remains NPA up to a period of 18 months; doubtful

if it remains NPA for more than 18 months; and loss, without any waiting period,

where the dues are considered not collectible or marginally collectible.

Net NPA is gross NPA less provisions. Since in India, bank balance sheets contains a

huge amount of NPAs and the process of recovery and write off of loans is very time

consuming, the provisions the banks have to make against the NPA according to the

central bank guidelines, are quite significant.


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Here, we can see that there is huge difference between gross and net NPA. While

gross NPA reflects the quality of the loans made by banks, net NPA shows the

actual burden of banks. The requirements for provisions are:

100% for loss assets 100% of the unsecured portion plus 20-50% of the secured portion, depending

on the period for which the account has remained in the doubtful category

10% general provision on the outstanding balance under the sub standard

category.

Here, there are gross and net NPA data for 2006-07 and 2007-08 we taken for

comparison among banks. These data are NPA AS PERCENTAGE OF TOTAL

ASSETS. As we discuss earlier that gross NPA reflects the quality of the loans made

by banks. Among all the ten banks Dena Banks has highest gross NPA as a

percentage of total assets in the year 2006-07 and also net NPA. Punjab National Bank

shows vast difference between gross and net NPA. There are almost same figures

between BOI and BOB.

YEAR 2006-07


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BANK GROSS NPA NET NPA

BOB 1.46 0.35

BOI 1.48 0.45

DENA 2.37 1.16

PNB 2.09 0.45

UBI 1.82 0.59


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2007-08


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

2006-07



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AXIS 0.57 0.36

HDFC 0.72 0.22

ICICI 1.20 0.58

KOTAK 1.39 1.09

INDUSIND 1.64 1.31

2007-08


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


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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?

GROSS NPA:-

COMPARISON OF NET NPA WITH ALL BANKS FOR THE YEAR 2007-08.

Average of these ten banks 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.

NET NPA of banks:-

PRIORITY NON PRIORITY SECTOR


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When we further bifurcate NPA in priority sector and Non priority sector. Agriculture +

small + others are priority sector. In private sector banks ICICI Bank has the highest

NPA in both sectors in compare to other private sector banks. Around 72% of NPA is

with ICICI Bank with Rs.1359 crore in priority sector and around 78% in non priority

sector. We can see that in private sector banks, banks have more NPA in non priority

sector than priority sector.

BANK AGRI

( 1 )

SMALL

( 2 )

OTHERS

( 3 )

PRIORITY

SECTOR

( 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

BANK PRIORITY SECTOR

(ADVANCED RS.CRORE

)

NPA

BOB 5469 350

BOI 3269 325

DENA 1160 106

PNB 3772 443

UBI 1924 197


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When we talk about public sector banks they are more in priority sector and they given

advanced to weaker sector or industries. Public sector banks give more loans to

Agriculture , small scale and others units and as a result we see that there are more

number of NPA in public sector banks than in private sector banks. BOB given more

advanced to priority sector in 2007-08 than other four banks and Dena Bank is in least.

But when there are comparison between private bank and public sector bank still ICICI

Bank has more NPA in both priority and non priority sector with the comparison of public

sector banks. Large NPA in ICICI Bank because the strategy of bank that risk-reward

attitude and initiative in each sector. Above we also discuss that ICICI Bank has

highest deposit-investment-advance than other banks.

Now, when we compare the all public sector banks and public sector banks on priority

and non-priority sector than the figures are really shocking. Because in compare of

private sector banks, public sector banks numbers are very large.

SECTOR

PUBLIC SECTOR NEW PRIVATE

2006-07 2007-08 2006-07 2007-08

PRIORITY 22954 25287 1468 2080PUBLIC 490 299 3 0

NON PRT 15158 14163 4800 8339

TOTAL 38602 39749 6271 10419


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Here, there is huge difference between private and public sector banks NPA. There is

increase in new private sector banks NPA of Rs.4148 cr in 2007-08 which is almost

66% rise than previous year. In public sector banks the numbers are not increased like

private sector banks.

Summary

NPAs- NON PERFORMING ASSETS

When an asset ceases to generate income for bank it is called as non performing asset.

Nonperforming asset shell be an advance where

Interest and/or installment of principal remain overdue for a period of more than 180

days in respect of a term loan.

There are many factors for rise in NPAs like willful defaults, natural calamities, industrial

sickness, inappropriate technology, improper swot analysis, managerial deficiencies.

I have done the comparative analysis NPAs of public and private sector banks. So for

this I have taken 5 public sector and 5 private sector banks. For understanding I further

divide the non performing assets in priority sector and non priority sector, gross NPA

and net NPA in percentage as well as in rupees, deposit investment advances.

Banks I have taken are axis bank, hdfc bank, icici bank, kotak, indusind. And public

sector banks I have taken are BOB, BOI, DENA, PNB, and UBI.

Deposit Investment Advances is the first in the analysis because due to these we

can understand the where the bank stands in the competitive market. As at end of

March 2008, in private sector ICICI Bank is the highest deposit-investment-advances

figures in rupees crore, second is HDFC Bank and KOTAK Bank has least figures.


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In public sector banks Punjab National Bank has highest deposit-investment-advances

but when we look at graph first three means Bank of Baroda and Bank of India are

almost the similar in numbers and Dena Bank is stands for last in public sector bank.

When we compare the private sector banks with public sector banks among these

banks, we can understand the more number of people prefer to choose public sector

banks for deposit-investment. But when we compare the private sector bank ICICI Bank

with the public sector banks ICICI Bank is more deposit-investment figures and first in

the all banks.

There are 2 concepts of nonperforming assets

1) Gross 2) net

Gross refers to all NPAs on a banks balance sheet irrespective of the provisionsmade. It consists of all the non standard assets, viz. Sub standard, doubtful,

and loss assets. A loan asset is classified as sub standard if it remains NPA up

to a period of 18 months; doubtful if it remains NPA for more than 18 months;

and loss, without any waiting period, where the dues are considered not

collectible or marginally collectible.

Net NPA is gross NPA less provisions. Since in India, bank balance sheets

contains a huge amount of NPAs and the process of recovery and write off of

loans is very time consuming, the provisions the banks have to make against the

NPA according to the central bank guidelines, are quite significant.

Here, there are gross and net NPA data for 2006-07 and 2007-08 I taken for

comparison among banks. These data are NPA AS PERCENTAGE OF TOTAL

ASSETS. As I discuss earlier that gross NPA reflects the quality of the loans made by

banks. Among all the ten banks Dena Banks has highest gross NPA as a percentage of

total assets in the year 2006-07 and also net NPA. Punjab National Bank shows vast

difference between gross and net NPA. There are almost same figures between BOI

and BOB. 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 I take all the ten banks gross NPA together for better


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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. This is

higher in comparison of private sector banks. COMPARISON OF NET NPA WITH ALL

BANKS FOR THE YEAR 2007-08. Average of these ten banks 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. When we further bifurcate NPA in priority sectorand Non priority sector. Agriculture + small + others are priority sector. In private

sector banks ICICI Bank has the highest NPA in both sectors in compare to other

private sector banks. Around 72% of NPA is with ICICI Bank with Rs.1359 crore in

priority sector and around 78% in non priority sector. We can see that in private sector

banks , banks has more NPA in non priority sector than priority sector. When we talk

about public sector banks they are more in priority sector and they given advanced to

weaker sector or industries. Public sector banks give more loans to Agriculture, small

scale and others units and as a result we see that there is more number of NPA in

public sector banks than in private sector banks. BOB given more advanced to priority

sector in 2007-08 than other four banks and Dena Bank is in least.

But when there are comparison between private bank and public sector bank still

ICICI Bank has more NPA in both priority and non priority sector with the

comparison of public sector banks. Large NPA in ICICI Bank because the strategy

of bank that risk-reward attitude and initiative in each sector. Above we also discuss

that ICICI Bank has highest deposit-investment-advance than other banks.


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Now, when we compare the all public sector banks and public sector banks on priority

and non-priority sector than the figures are really shocking. Because in compare of

private sector banks, public sector banks numbers are very large.

Here, there are huge differences between private and public sector banks NPA. Thereis increase in new private sector banks NPA of Rs.4148 cr in 2007-08 which is almost

66% rise than previous year. In public sector banks the numbers are not increased like

private sector banks.

Bibliography1) http://en.wikipedia.org/wiki/Non-performing_asset

2) http://www.business-standard.com/india/news/icici-home-finance-npas-rise-35-

times/377397/

3) http://www.blonnet.com/2008/01/27/stories/2008012750930201.htm

4) http://www.capitalmarket.com/BrokerResearch/PDFs/17-300570-050209.pdf

5) http://blogs.siliconindia.com/financeandinvestment/ICICI_Home_Finance_NPAs_ris

e_35_times-bid-yvRwOm6s38495114.html

6) http://www.business-standard.com/india/news/bob-puts-npas-worth-rs-460-

crblock/305918/

7) http://www.thehindubusinessline.com/2009/05/02/stories/2009050250350800.htm

8) http://www.unitedbankofindia.com/sale-of-npas.asp

9) http://www.domain-b.com/companies/companies_i/ifci/20061208_sale.html

10) http://www.financialexpress.com/news/dena-bank-to-cut-npas-to-2/142508/
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