“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
BABASAB PATIL !
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
Executive Summery
T"e f#t#re of Indian Banking represents a #ni$#e mi%t#re of #nlimited
opport#nities amidst ins#rmo#ntable c"allenges& 'n t"e one "and we see t"e scenario
represented by t"e rapid process of globali(ation presently taking s"ape bringing t"e
comm#nity of nations in t"e world toget"er) transcending geograp"ical bo#ndaries) in t"e
sp"ere of trade and commerce) and even employment opport#nities of individ#als& All
t"ese indicate newly emerging opport#nities for Indian Banking& B#t on t"e darker side
we see t"e acc#m#lated morass) bro#g"t o#t by t"ree decades of controlled and
regimented management of t"e banks in t"e past& It "as sip"oned profitability of t"e many
banks) acc#m#lated bloated NPA and t"reatens *apital Ade$#acy of t"e Banks and t"eir
contin#ed stability&
New Private Sector Banks in India can solve t"eir problems only if t"ey assert a
spirit of selfinitiative and selfreliance t"ro#g" developing t"eir in"o#se e%pertise& T"ey
"ave to imbibe t"e banking p"ilosop"y in"erent in dereg#lation NPA is a problem
created by t"e Banks and t"ey "ave to find t"e ca#se and t"e sol#tion "ow it was created
and "ow t"e Banks are to overcome it& An attempt is made in t"is st#dy t"e present
sit#ation and to arrive at a sol#tion to solve t"is problem&
BABASAB PATIL +
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
Design of the study
Title of the project:
“Non Performing Assets and its impact on Profitaility of Ne! Private Sector
"an#s$%
Scope of study: Scope of my st#dy restricted only to , New Private Sector Banks NPA
data-s and Advances) and for *omparison of *redit risk pat" , old selected Private Banks
is taken&
Need &or Study:
• T"is st#dy will "elp to know t"e recent norms of NPA&
• T"is st#dy "elps to know "ow NPA *a#sing Problems to Banking Sector and
w"at mig"t be t"e sol#tion to overcome from t"is problem and also its impact on
Profitability of New Profit Banks&
STATE'ENT (& T)E P*("+E'
Profitability is considered as a benc"mark for eval#ating performance of any
b#siness enterprise incl#ding t"e banking ind#stry& .owever) increasing Non
Performing Assets) "ave a direct impact on profitability of banks and financial
instit#tions& Legally speaking banks and financial instit#tions are not allowed to book
income on s#c" acco#nt and at t"e same times t"ey are forced to make provision on s#c"
assets& So T"is pro/ect is #ndertaken to now impact of NPA on Profitability of New
Private Sector Banks&
BABASAB PATIL 0
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
(jectives of Study
!& To st#dy t"e 1BI norms on Non Performing Assets) and t"e vario#s reasons for
t"e e%istence of "#ge level of NPA in Indian banking&
+& To know t"e performance comparison of New Private Banks Non performing
asset for past 0 years&
0& To know t"e impact of non performing assets on profitability of New Private
Banks) and comparison of credit risk pat" of New Private Banks wit" , selected
'ld Private Banks&
2& To st#dy t"e vario#s steps taken by t"e banks to bring down t"e NPA-s in
respective bank branc"es&
3& To recommend meas#res for Improving performance and red#ction of Non
Performing Assets&
'ethodology
Primary Data:
4iews of t"e concerned officials were gat"ered by directly interacting wit" t"em) and
s#c" data was fo#nd very #sef#l w"ile analy(ing and drawing concl#sions&
Secondary Data:
• 1ecent 1BI norms of NPA&
• IBA B#lletin 5f +55356 is referred to collect data for Net NPA) and Advances&
• 7eb site of 8TI Bank and ot"er 7eb sites&
Plan of analysis:
In t"is st#dy $#adrant analysis is #sed on t"e calc#lated fig#res&
+imitations:
• T"e st#dy is based mostly on secondary data&
• 9ata "as been drawn from /o#rnals) so information may not be complete&
BABASAB PATIL 2
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
•
r t"e analysis only t"e advances and NPA percentages of banks and operating
profit) provisions and contingencies as a w"ole and net profit of New PSB-s are
taken into consideration&
,NT*(D-.T,(N
It;s a known fact t"at t"e banks and financial instit#tions in India face t"e problem
of swelling nonperforming assets nforcement of
Sec#rity Interest Act) +55+ was passed by Parliament) w"ic" is an important step towards
elimination or red#ction of NPA-s&
'EAN,N/ (& NPA0s:
An asset is classified as nonperforming asset #rope) witnessed a remarkable innovative growt" in t"e banking ind#stry) w"et"er
meas#red in terms of deposit growt") credit growt") growt" intermediation instr#ments as
well as in network&
9#ring all t"ese years t"e Indian Banking) w"ose environment was ins#lated from
t"e global conte%t and was denominated by State controls of directed credit delivery)
reg#lated interest rates) and investment str#ct#re did not participate in t"is vibrant
banking revol#tion& S#ffering t"e deart" of innovative spirit and c"oking #nder #nd#e
regimentation) Indian banking was lacking ob/ective and pr#dential systems of b#siness
leading from early stagnation to event#al degeneration and red#ced or negative
profitability& *ontin#ed political interference) t"e absence of competition and total lack of
scientific decisionmaking) led to conse$#ences /#st t"e opposite of w"at was "appening
in t"e western co#ntries& Imperfect acco#nting standards and opa$#e balance s"eets
served as tools for "iding t"e s"ortcomings and failing to reveal t"e progressive
BABASAB PATIL 6
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
deterioration and str#ct#ral weakness of t"e co#ntry;s banking instit#tions to p#blic view&
T"is enabled t"e nationali(ed banks to contin#e to flo#ris" in a deceptive manifestation
and false glitter) t"o#g" stray symptoms of t"e brewing ailment were discernable "ere
and t"ere&
T"e government "astily introd#ced t"e first p"ase of reforms in t"e financial and
banking sectors after t"e economic crisis of !AA!& T"is was an effort to $#ickly res#rrect
t"e "ealt" of t"e banking system and bridge t"e gap between Indian and global banking
development& Indian Banking) in partic#lar PSB-s s#ddenly woke #p to t"e realities of t"e
sit#ation and to face t"e b#rden of t"e s#rfeit of t"eir woes& Sim#ltaneo#sly ma/or
revol#tionary transitions were taking place in ot"er sectors of t"e economy on acco#nt
t"e ongoing economic reforms intended towards freeing t"e Indian economy from
government controls and linking it to market driven forces for a $#ick integration wit"
t"e global economy& Import restrictions were grad#ally freed& Tariffs were bro#g"t down
and $#antitative controls were removed& T"e Indian market was opened for free
competition to t"e global players& T"e new economic policy in t#rn revol#tionalised t"e
environment of t"e Indian ind#stry and b#siness and p#t t"em to similar problems of new
mi%t#re 'f opport#nities and c"allenges& As a res#lt we witness today a scenario of
banking) trade and ind#stry in India) all #ndergoing t"e conv#lsions of total reformation
battling to kick off t"e decadence of t"e past and to gain a new strengt" and vigor for
effective links wit" t"e global economy& @any are still lang#is"ing #nable to get released
from t"e old set#p) w"ile a few progressive corporate are making a nic"e for t"emselves
in t"e global conte%t&
9#ring t"is decade t"e reforms "ave covered almost every segment of t"e
financial sector& In partic#lar) it is t"e banking sector) w"ic" e%perienced ma/or reforms&
T"e reforms "ave taken t"e Indian banking sector far away from t"e days of
nationali(ation& Increase in t"e n#mber of banks d#e to t"e entry of new private and
foreign banksC increase in t"e transparency of t"e banks; balance s"eets t"ro#g" t"e
BABASAB PATIL ,
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
introd#ction of pr#dential norms and norms of disclos#reC increase in t"e role of t"e
market forces d#e to t"e dereg#lated interest rates) toget"er wit" rapid comp#teri(ation
and application of t"e benefits of information tec"nology to banking operations "ave all
significantly affected t"e operational environment of t"e Indian banking sector&
In t"e backgro#nd of t"ese comple% c"anges w"en t"e problem of NPA was
belatedly recogni(ed for t"e first time at its peak velocity d#ring !AA+A0) t"ere was
res#ltant c"aos and conf#sion& As t"e problem in large magnit#de er#pted s#ddenly banks
were #nable to analy(e and make a realistic or complete assessment of t"e s#rmo#nting
sit#ation& It was not reali(ed t"at t"e root of t"e problem of NPA was centered elsew"ere
in m#ltiple layers) as m#c" o#tside t"e banking system) more partic#larly in t"e transient
economy of t"e co#ntry) as wit"in& Banking is not a compartmentali(ed and isolated
sector delinked from t"e rest of t"e economy& As "as "appened elsew"ere in t"e world) a
distressed national economy s"ifts a part of its negative res#lts to t"e banking ind#stry& In
s"ort) banks are made #ltimately to finance t"e losses inc#rred by constit#ent ind#stries
and b#sinesses& T"e #nprepared ness and str#ct#ral weakness of o#r banking system to
act to t"e emerging scenario and derisk itself to t"e c"allenges t"rown by t"e new order)
trying to switc" over to globali(ation were only aggravating t"e crisis& Partial perceptions
and "asty /#dgments led to a policy of ad"ocism) w"ic" c"aracteri(ed t"e approac" of
t"e a#t"orities d#ring t"e last twodecades towards finding sol#tions to banking ailments
and dismantling recovery impediments& *ontin#o#s concern was e%pressed& 1epeated
correctional efforts were e%ec#ted) b#t positive res#lts were evading& T"e problem was
defying a sol#tion&
T"e t"reat of NPA was being s#rveyed and s#mmari(ed by 1BI and Dovernment
of India from a remote perception looking at a bird;seyeview on t"e banking ind#stry as
a w"ole delinked from t"e rest of t"e economy& 1BI looks at t"e banking ind#stry;s
average on a macro basis) consolidating and tab#lating t"e data s#bmitted by different
instit#tions& It "as collected e%tensive statistics abo#t NPA in different financial sectors
like commercial banks) financial instit#tions) #rban cooperatives) NB:* etc& B#t still it is
BABASAB PATIL ?
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
a distant view of one o#tside t"e system and not t"e felt view of a s#ffering participant&
Individ#al banks in"erit different c#lt#res and t"ey finance diverse sectors of t"e
economy t"at do not possess identical attrib#tes& T"ere are distinct diversities as among
t"e +A p#blic sector banks t"emselves) between different geograp"ical regions and
between different types of c#stomers #sing bank credit& T"ere are t"ree weak nationali(ed
banks t"at "ave been identified& B#t t"ere are also correspondingly two better performing
banks like *orporation and 'B*& T"ere are also banks t"at "ave s#ccessf#lly contained
NPA and bro#g"t it to single digit like Syndicate veryone is
satisfied in blaming t"e ot"ers& Bank e%ec#tives "old ;willf#l defa#lters; responsible for
all t"e plag#e& Ind#stry and b#siness blames t"e government policies&
Important factrevealing information for eac" NPA acco#nt is t"e gap period
between t"e date) w"en t"e advance was originally made and t"e date of its becoming
NPA& If t"e gap is long) it is t"e case of a s#nset ind#stry& T"ings were all rig"t earlier) b#t
economic variance in trade cycles or market sentiments "ave created t"e NPA& *redit
c#stomers w"o are in NPA today) b#t for years were earlier rated as good performers and
creditwort"y clients ranging wit"in t"e top 35 or !55& Significant part of t"e NPA is on
acco#nt of clo#t banking or willf#lly given bad loans& Infant mortality in credit is solely
on acco#nt of "#man factors and absence of "#man integrity&
BABASAB PATIL !5
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
*redit to different sectors given by t"e PSB-s in fact represents different prod#cts&
Advance to weaker sections below 1s&+3555B represents t"e act#al social banking& NPA
in t"is sector forms ? T' !5E of t"e gross amo#nt& Advance to agric#lt#re) SSI and big
ind#stries eac" calls for different strategies in terms of credit assessment, credit delivery,
project implementation, and post advance supervision& NPA in different sector is not
ca#sed by t"e same res#ltant factors& *ontaining $#ant#m of NPA is t"erefore to be
programmed by a sectorwise strategy involving a role of t"e actively engaged
participants w"o can tell w"ere t"e boot pinc"es in eac" case& B#siness and ind#stry "as
e$#al responsibility to accept acco#ntability for containment of NPA& @any of t"e present
defa#lters were once tr#sted and val#ed c#stomers of t"e banks& 7"y "ave t"ey become
#nreliable now) or "ave t"eyI
T"e credit portfolio of a nationali(ed bank also incl#des a n#mber of lowrisk and
riskfree segments) w"ic" cannot create NPA& Small personal loans against banks; own
deposits and ot"er tangible and easily marketable sec#rities pledged to t"e bank and "eld
in its c#stody are of t"is category& S#c" small loans are #niversally given in almost all t"e
branc"es and "ence t"e aggregate constit#tes a significant fig#re& T"en t"ere is food
credit given to :*I for food proc#rement and similar credits given to ma/or p#blic
8tilities and P#blic Sector 8ndertakings of t"e *entral Dovernment& It is only t"e
resid#al fragments of Bank credit t"at are e%posed to credit fail#res and reasons for NPA
can be ascertained by scr#tini(ing t"is segment&
Secondly NPA is not a dilemma facing e%cl#sively t"e Bankers& It is in fact an all
pervasive national sco#rge swaying t"e entire Indian economy& NPA is a sore t"roat of t"e
Indian economy as a w"ole& T"e banks are only t"e #ltimate victims) w"ere life cycle of
t"e vir#s is terminated&
Now) "ow does t"e Dovernment s#fferI 7"at abo#t t"e rec#rring loss of reven#e
by way of ta%es) e%cise to t"e government on acco#nt of clos#re of several lak"s of
erstw"ile vibrant ind#strial #nits and inefficient #sage of costly ind#strial infrastr#ct#re
BABASAB PATIL !!
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
erected wit" considerable investment by t"e nationI As per statistics collected t"ree years
back t"ere are over two and "alf million small ind#strial #nits representing over A5
percent of t"e total n#mber of ind#strial #nits& A ma/ority of t"e ind#strial work force
finds employment "ere and t"e sector;s contrib#tion to ind#strial o#tp#t is s#bstantial and
is estimated at over 03 percent w"ile its s"are of e%ports is also val#ed to be aro#nd 25
percent& '#t of t"e +&3 million) abo#t !5E of t"e small ind#stries are reported to be sick
involving a bank credit o#tstanding aro#nd 1s&3555 to 6555 *rores) at t"at period& It may
be even more now& T"ese closed #nits represent some t"o#sands of displaced workers
Previo#sly en/oying gainf#l employment& >ac" closed #nit w"et"er large) medi#m or
small occ#pies costly developed ind#strial land& Several items of mac"inery form sec#rity
for t"e NPA acco#nts s"o#ld eit"er be lying idle or /#nking o#t& In ot"er words) large
val#e of land) mac"inery and money are locked #p in ind#strial sickness& T"ese are t"e
assets created t"at "ave t#rned #nprod#ctive and t"ese represent t"e real p"ysical NPA)
w"ic" indirectly are reflected in t"e financial statements of nationali(ed banks) as t"e
#ltimate financiers of t"ese assets& In t"e final analysis it represents instability in ind#stry&
NPA represents t"e owes of t"e credit recipients) in t#rn transferred and parked wit" t"e
banks&
1ecogni(ing NPA as a sore t"roat of t"e Indian economy) t"e field level
participants s"o#ld first address t"emselves to find t"e sol#tion& 7"y not representatives
of ind#stries and commerce and t"at of t"e Indian Banks; Association come toget"er and
candidly analy(e and find an everlasting sol#tion "eralding t"e real spirit of dereg#lation
and decentrali(ation of management in banking sector) and accepting selfdiscipline and
selfrelianceI 7"at are t"e deficiencies in credit delivery t"at leads to its mis#se) ab#se or
lossI .ow to c"eck mis#se and ab#se at so#rceI .ow to deal wit" erring *orporateI In
s"ort) t"e f#nctional staff of t"e Bank along wit" t"e representatives of b#siness and
ind#stry "as to accept a candid introspection and arrive at a code of discipline in any final
sol#tion& And preventive action to be s#ccessf#l s"o#ld start from t"e creditrecipient
level and t"en e%tend to t"e bankers& 1BI and Dovernment of India can positively
facilitate t"e process by providing enabling meas#res& 9o not try to set rig"t ind#stry and
BABASAB PATIL !+
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
banks) b#t "elp ind#stry and banks to set rig"t t"emselves& T"e new tool of dereg#lated
approac" "as to be accepted in solving NPA&
*EAS(NS &(* T)E E3,STEN.E (& )-/E +E4E+ (& NPA0S ,N T)E
,ND,AN "AN1,N/ S2STE' 5,"S6:
T"e origin of t"e problem of b#rgeoning NPA-s lies in t"e $#ality of managing
credit risk by t"e banks concerned& 7"at is needed is "aving ade$#ate preventive
meas#res in place namely) fi%ing presanctioning appraisal responsibility and "aving an
effective postdisb#rsement s#pervision& Banks concerned s"o#ld contin#o#sly monitor
loans to identify acco#nts t"at "ave potential to become nonperforming&
To start wit") performance in terms of profitability is a benc"mark for any
b#siness enterprise incl#ding t"e banking ind#stry& .owever) increasing NPA-s "ave a
direct impact on banks profitability as legally banks are not allowed to book income on
s#c" acco#nts and at t"e same time banks are forced to make provision on s#c" assets as
per t"e 1eserve Bank of India SSH Balance from interest s#spense acco#nt !+,52
L>SSH 9I*D*B>*D* *laims received b#t pending for
ad/#stment
06
L>SSH Part payment received and kept in S#spense ABc +A+?
N>T N'N P>1:'1@IND ASS>TS +!,65
N>T NPA IN P>1*>NTAD> 5&A,E
T)E NA*AS,')AN .('',TTEE?S &,*ST *EP(*T
T"e salient feat#res of t"ese reforms incl#deH
• P"asing o#t of stat#tory preemption T"e SL1 re$#irement "ave been bro#g"t
down from 0?&3E to +3E and *11 re$#irement from ,&35E to 3&,3E& ntry of new private sector banks A new private sector banks "ave been set #p
wit" a view to ind#ce greater competition and for improving operational
efficiency of t"e banking system& *ompetition "as been introd#ced in a controlled
manner and today we "ave nine new private sector banks and 06 foreign banks in
India competing wit" t"e p#blic sector banks bot" in retail and corporate banking
• :#nctional a#tonomy T"e minim#m prescribed Dovernment e$#ity was bro#g"t
to 3!E& Nine nationali(ed banks raised 1s&+?33 crores from t"e market d#ring
!AA2+55!& Banks Boards "ave been given more powers in operational matters
s#c" as rationali(ation of branc"es) credit delivery and recr#itment of staff&
BABASAB PATIL ++
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
• .iving off of reg#latory and s#pervisory control Board for financial s#pervision
was set #p #nder t"e 1BI in !AA2 bif#rcating t"e reg#latory and s#pervisory
f#nctions&
NA*AS,')AN .('',TTEE@ SE.(ND *EP(*T
T"e Narasim"an *ommittee on Banking 1eforms) in its second report) "as
combined drastic s#rgery wit" a strong dose of medicine to c#re t"e ailing ind#stry& 'n
performing assets asier said t"an done)K says a
top banker& KAlready we do a lot of windowdressing& '#tstanding acco#nts are s"own as
BABASAB PATIL +0
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
priority lending to meet targets& 7e keep lending to defa#lters to roll over t"e NPA-s&
:i%ing #nrealistic targets will be co#nterprod#ctive&K
T"e committee "as recommended t"at banks s"o#ld not lend to defa#lters) b#t
bankers say t"at t"is is #nrealistic& T"ey claim t"at in t"e absence of fres" loans) t"e
defa#lting companies will close down) and leading to loss of /obs& K7ill t"at be
acceptableIK asks a banker& Bankers also complain t"at t"ey are forced by t"e Board for
Ind#strial and :inancial 1econstr#ction t"at at t"e meeting of t"e Board of 9irectors of
t"e company "eld on Oan#ary !6) +550) S"ri 1 N B"aradwa/) @anaging 9irector
of LI* "as been appointed as an Additional 9irector of t"e Bank wit" immediate
effect&
8TI Bank) t"e private sector bank "as opeaned a branc" at Nellore& T"e bank;s
*"airman and @anaging 9irector) 9r P&O& Nayak) ina#g#rating t"e bank branc"
at DT 1oad on @ay +6& Speaking on t"e occasion) 9r Nayak said) KT"is marks
anot"er step towards t"e e%tensive c#stomer banking foc#s t"at we are providing
across t"e co#ntry and reinforces o#r commitment to bring s#perior banking
services) marked by convenience and closeness to c#stomers&
8TI "as been a#t"orised to la#nc" !6 AT@s on t"e 7estern 1ailway Stations of
@#mbai 9ivision&
8TI filed s#it against financial instit#tions I:*I Ltd in t"e debt recovery trib#nal
at @#mbai to recover 1s&?3cr in d#es&
8TI bank made an entry to t"eod *redit Programme) it "as made an entry
into t"e 3A cl#ster w"ic" incl#des private sector) p#blic sector) old private sector
and cooperative banks&
S"ri A/eet Prasad) Nminee of 8TI "as resigned as t"e director of t"e bank&
Banks *"airman and @9 9r&P&O&Nayak ina#g#rated a new branc" at Nellore&
8TI bank allots s"ares #nder >mployee Stock 'ption Sc"eme to its employees&
8TI Bank ties #p wit" 8Q govt f#nd for contract farming
BABASAB PATIL 22
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
S"ri B S Pandit) nominee of t"e Administrator of t"e Specified 8ndertaking of t"e
8nit Tr#st of India %c"ange 9esk
? International Banking
? @oney @arket 9esk
? *onstit#ent SDL :acility
? 1etail Dsec
? 9eposit 1ate
? Newsletter
?reign >%c"ange
BABASAB PATIL 3+
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
BABASAB PATIL 30
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
&indings
And
Analysis
BABASAB PATIL 32
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
Design of the study
Title of the project:
“Non Performing Assets and its impact on Profitaility of Ne! Private Sector
"an#s$%
Scope of study: Scope of my st#dy restricted only to , New Private Sector Banks NPA
data-s and Advances) and for *omparison of *redit risk pat" , old selected Private Banks
are taken&
Need &or Study:
• T"is st#dy will "elp to know t"e recent norms of NPA&
• T"is st#dy "elps to know "ow NPA *a#sing Problems to Banking Sector and
w"at mig"t be t"e sol#tion to overcome from t"is problem and also its impact on
Profitability of New Profit Banks&
STATE'ENT (& T)E P*("+E'
Profitability is considered as a benc"mark for eval#ating performance of any
b#siness enterprise incl#ding t"e banking ind#stry& .owever) increasing Non
Performing Assets) "ave a direct impact on profitability of banks and financial
instit#tions& Legally speaking banks and financial instit#tions are not allowed to book
income on s#c" acco#nt and at t"e same times t"ey are forced to make provision on s#c"
BABASAB PATIL 33
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
assets& So T"is pro/ect is #ndertaken to now impact of NPA on Profitability of New
Private Sector Banks&
(jectives of Study
6& To st#dy t"e 1BI norms on Non Performing Assets) and t"e vario#s reasons for
t"e e%istence of "#ge level of NPA in Indian banking&
,& To know t"e performance comparison of New Private Banks Non performing
asset for past 0 years&
?& To know t"e impact of non performing assets on profitability of New Private
Banks) and comparison of credit risk pat" of New Private Banks wit" , selected
'ld Private Banks&
A& To st#dy t"e vario#s steps taken by t"e banks to bring down t"e NPA-s in
respective bank branc"es&
!5& To recommend meas#res for Improving performance and red#ction of Non
Performing Assets&
'ethodology
Primary Data:
4iews of t"e concerned officials were gat"ered by directly interacting wit" t"em) and
s#c" data was fo#nd very #sef#l w"ile analy(ing and drawing concl#sions&
Secondary Data:
• 1ecent 1BI norms of NPA&
• IBA B#lletin 5f +55356 is referred to collect data for Net NPA) and Advances&
• 7eb site of 8TI Bank and ot"er 7eb sites&
BABASAB PATIL 36
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
Plan of analysis:
In t"is st#dy $#adrant analysis is #sed on t"e calc#lated fig#res&
+imitations:
• T"e st#dy is based mostly on secondary data&
• 9ata "as been drawn from /o#rnals) so information may not be complete&
•r t"e analysis only t"e advances and NPA percentages of banks and operating
profit) provisions and contingencies as a w"ole and net profit of New PSB-s are
taken into consideration&
,mpact of Provisions and .ontingencies on Net Profit of Ne! Private "an#s%
Performance comparison of Ne! Private Sector "an#s (perating Profit of B years
S No "an#s (perating Profit 5 in .rore6
=99B@9C =99C@9D =99D@9A
! Bank of Pan/ab LtdU !50 !A
+ *ent#rion Bank LtdU !+ 0! !2?
0 .9:* Bank Ltd !55? !022 !A,A
2 I*I*I Bank Ltd +2?! +A36 26A!
3 Ind#sind Bank Ltd& 223 25! ++3
6 Qotak @a"indra Bank Ltd& !+, !00 +!!
, 8TI Bank Ltd 6A? 366 AA2
? Ges Bank LS s#pervisory rating
system of 1BI&
BABASAB PATIL ,5
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
.redit ris# path of the Ne! Private "an#0s y .omparing !ith selected F (ld PS"0s
using >uadrant Analysis%
.redit ris# path of the Ne! Private "an#0s:
Ne! Private
"an#s
NPA to Net
Advances
5 I6
Advances5crores6 >uadrant
analysis
=99D =99A =99D =99A =99D =99A
Bank of Pan/ab LtdU
2&62 +2!, .L
*ent#rion Bank LtdU
+&2A !&!0 +!A2 6300 .L .L
.9:* Bank Ltd
5&+2 5&22 +3366 0,66! L. L.
I*I*I Bank Ltd
!&63 5&,+ A!253 !26!60 L. L.
Ind#sind Bank Ltd&
+&,! +&5A A555 A0!5 .L .L
Qotak @a"indra Bank
Ltd&
5&0, 5&+2 25!, 602A LL LL
8TI Bank Ltd
!&0A
5&A? !3650 ++0!2 LL LL
,nterpretation
BABASAB PATIL ,!
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
.redit ris# path of the Ne! PS"0s: A >uadrant Analysis
In t"e c"art below an attempt is made to trace t"e relations"ip between NPA
proportion and t"e si(e of credit portfolio -AD*ANT TA"+E@ =99D
L>4>L
*1>9IT L>4>L
NPA
L'7 L'7 A4D=
&g& w"ile LL means low in credit si(e and low in NPA-s) L. implies low
in NPA and .ig" in credit si(e& T"e following facts are visible from t"e $#adrant tableH
4>L
*1>9IT L>4>L
NPA
L'7 L'7 A4D=
New Private Sector Banks”
BABASAB PATIL !
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
Executive Summery
T"e f#t#re of Indian Banking represents a #ni$#e mi%t#re of #nlimited
opport#nities amidst ins#rmo#ntable c"allenges& 'n t"e one "and we see t"e scenario
represented by t"e rapid process of globali(ation presently taking s"ape bringing t"e
comm#nity of nations in t"e world toget"er) transcending geograp"ical bo#ndaries) in t"e
sp"ere of trade and commerce) and even employment opport#nities of individ#als& All
t"ese indicate newly emerging opport#nities for Indian Banking& B#t on t"e darker side
we see t"e acc#m#lated morass) bro#g"t o#t by t"ree decades of controlled and
regimented management of t"e banks in t"e past& It "as sip"oned profitability of t"e many
banks) acc#m#lated bloated NPA and t"reatens *apital Ade$#acy of t"e Banks and t"eir
contin#ed stability&
New Private Sector Banks in India can solve t"eir problems only if t"ey assert a
spirit of selfinitiative and selfreliance t"ro#g" developing t"eir in"o#se e%pertise& T"ey
"ave to imbibe t"e banking p"ilosop"y in"erent in dereg#lation NPA is a problem
created by t"e Banks and t"ey "ave to find t"e ca#se and t"e sol#tion "ow it was created
and "ow t"e Banks are to overcome it& An attempt is made in t"is st#dy t"e present
sit#ation and to arrive at a sol#tion to solve t"is problem&
BABASAB PATIL +
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
Design of the study
Title of the project:
“Non Performing Assets and its impact on Profitaility of Ne! Private Sector
"an#s$%
Scope of study: Scope of my st#dy restricted only to , New Private Sector Banks NPA
data-s and Advances) and for *omparison of *redit risk pat" , old selected Private Banks
is taken&
Need &or Study:
• T"is st#dy will "elp to know t"e recent norms of NPA&
• T"is st#dy "elps to know "ow NPA *a#sing Problems to Banking Sector and
w"at mig"t be t"e sol#tion to overcome from t"is problem and also its impact on
Profitability of New Profit Banks&
STATE'ENT (& T)E P*("+E'
Profitability is considered as a benc"mark for eval#ating performance of any
b#siness enterprise incl#ding t"e banking ind#stry& .owever) increasing Non
Performing Assets) "ave a direct impact on profitability of banks and financial
instit#tions& Legally speaking banks and financial instit#tions are not allowed to book
income on s#c" acco#nt and at t"e same times t"ey are forced to make provision on s#c"
assets& So T"is pro/ect is #ndertaken to now impact of NPA on Profitability of New
Private Sector Banks&
BABASAB PATIL 0
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
(jectives of Study
!& To st#dy t"e 1BI norms on Non Performing Assets) and t"e vario#s reasons for
t"e e%istence of "#ge level of NPA in Indian banking&
+& To know t"e performance comparison of New Private Banks Non performing
asset for past 0 years&
0& To know t"e impact of non performing assets on profitability of New Private
Banks) and comparison of credit risk pat" of New Private Banks wit" , selected
'ld Private Banks&
2& To st#dy t"e vario#s steps taken by t"e banks to bring down t"e NPA-s in
respective bank branc"es&
3& To recommend meas#res for Improving performance and red#ction of Non
Performing Assets&
'ethodology
Primary Data:
4iews of t"e concerned officials were gat"ered by directly interacting wit" t"em) and
s#c" data was fo#nd very #sef#l w"ile analy(ing and drawing concl#sions&
Secondary Data:
• 1ecent 1BI norms of NPA&
• IBA B#lletin 5f +55356 is referred to collect data for Net NPA) and Advances&
• 7eb site of 8TI Bank and ot"er 7eb sites&
Plan of analysis:
In t"is st#dy $#adrant analysis is #sed on t"e calc#lated fig#res&
+imitations:
• T"e st#dy is based mostly on secondary data&
• 9ata "as been drawn from /o#rnals) so information may not be complete&
BABASAB PATIL 2
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
•
r t"e analysis only t"e advances and NPA percentages of banks and operatingprofit) provisions and contingencies as a w"ole and net profit of New PSB-s are
taken into consideration&
,NT*(D-.T,(N
It;s a known fact t"at t"e banks and financial instit#tions in India face t"e problem
of swelling nonperforming assets nforcement of
Sec#rity Interest Act) +55+ was passed by Parliament) w"ic" is an important step towards
elimination or red#ction of NPA-s&
'EAN,N/ (& NPA0s:
An asset is classified as nonperforming asset #rope) witnessed a remarkable innovative growt" in t"e banking ind#stry) w"et"er
meas#red in terms of deposit growt") credit growt") growt" intermediation instr#ments as
well as in network&
9#ring all t"ese years t"e Indian Banking) w"ose environment was ins#lated from
t"e global conte%t and was denominated by State controls of directed credit delivery)
reg#lated interest rates) and investment str#ct#re did not participate in t"is vibrant
banking revol#tion& S#ffering t"e deart" of innovative spirit and c"oking #nder #nd#e
regimentation) Indian banking was lacking ob/ective and pr#dential systems of b#siness
leading from early stagnation to event#al degeneration and red#ced or negative
profitability& *ontin#ed political interference) t"e absence of competition and total lack of
scientific decisionmaking) led to conse$#ences /#st t"e opposite of w"at was "appening
in t"e western co#ntries& Imperfect acco#nting standards and opa$#e balance s"eets
served as tools for "iding t"e s"ortcomings and failing to reveal t"e progressive
BABASAB PATIL 6
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
deterioration and str#ct#ral weakness of t"e co#ntry;s banking instit#tions to p#blic view&
T"is enabled t"e nationali(ed banks to contin#e to flo#ris" in a deceptive manifestation
and false glitter) t"o#g" stray symptoms of t"e brewing ailment were discernable "ere
and t"ere&
T"e government "astily introd#ced t"e first p"ase of reforms in t"e financial and
banking sectors after t"e economic crisis of !AA!& T"is was an effort to $#ickly res#rrect
t"e "ealt" of t"e banking system and bridge t"e gap between Indian and global banking
development& Indian Banking) in partic#lar PSB-s s#ddenly woke #p to t"e realities of t"e
sit#ation and to face t"e b#rden of t"e s#rfeit of t"eir woes& Sim#ltaneo#sly ma/or
revol#tionary transitions were taking place in ot"er sectors of t"e economy on acco#nt
t"e ongoing economic reforms intended towards freeing t"e Indian economy from
government controls and linking it to market driven forces for a $#ick integration wit"
t"e global economy& Import restrictions were grad#ally freed& Tariffs were bro#g"t down
and $#antitative controls were removed& T"e Indian market was opened for free
competition to t"e global players& T"e new economic policy in t#rn revol#tionalised t"e
environment of t"e Indian ind#stry and b#siness and p#t t"em to similar problems of new
mi%t#re 'f opport#nities and c"allenges& As a res#lt we witness today a scenario of
banking) trade and ind#stry in India) all #ndergoing t"e conv#lsions of total reformation
battling to kick off t"e decadence of t"e past and to gain a new strengt" and vigor for
effective links wit" t"e global economy& @any are still lang#is"ing #nable to get released
from t"e old set#p) w"ile a few progressive corporate are making a nic"e for t"emselves
in t"e global conte%t&
9#ring t"is decade t"e reforms "ave covered almost every segment of t"e
financial sector& In partic#lar) it is t"e banking sector) w"ic" e%perienced ma/or reforms&
T"e reforms "ave taken t"e Indian banking sector far away from t"e days of
nationali(ation& Increase in t"e n#mber of banks d#e to t"e entry of new private and
foreign banksC increase in t"e transparency of t"e banks; balance s"eets t"ro#g" t"e
BABASAB PATIL ,
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
introd#ction of pr#dential norms and norms of disclos#reC increase in t"e role of t"e
market forces d#e to t"e dereg#lated interest rates) toget"er wit" rapid comp#teri(ation
and application of t"e benefits of information tec"nology to banking operations "ave all
significantly affected t"e operational environment of t"e Indian banking sector&
In t"e backgro#nd of t"ese comple% c"anges w"en t"e problem of NPA was
belatedly recogni(ed for t"e first time at its peak velocity d#ring !AA+A0) t"ere was
res#ltant c"aos and conf#sion& As t"e problem in large magnit#de er#pted s#ddenly banks
were #nable to analy(e and make a realistic or complete assessment of t"e s#rmo#nting
sit#ation& It was not reali(ed t"at t"e root of t"e problem of NPA was centered elsew"ere
in m#ltiple layers) as m#c" o#tside t"e banking system) more partic#larly in t"e transient
economy of t"e co#ntry) as wit"in& Banking is not a compartmentali(ed and isolated
sector delinked from t"e rest of t"e economy& As "as "appened elsew"ere in t"e world) a
distressed national economy s"ifts a part of its negative res#lts to t"e banking ind#stry& In
s"ort) banks are made #ltimately to finance t"e losses inc#rred by constit#ent ind#stries
and b#sinesses& T"e #nprepared ness and str#ct#ral weakness of o#r banking system to
act to t"e emerging scenario and derisk itself to t"e c"allenges t"rown by t"e new order)
trying to switc" over to globali(ation were only aggravating t"e crisis& Partial perceptions
and "asty /#dgments led to a policy of ad"ocism) w"ic" c"aracteri(ed t"e approac" of
t"e a#t"orities d#ring t"e last twodecades towards finding sol#tions to banking ailments
and dismantling recovery impediments& *ontin#o#s concern was e%pressed& 1epeated
correctional efforts were e%ec#ted) b#t positive res#lts were evading& T"e problem was
defying a sol#tion&
T"e t"reat of NPA was being s#rveyed and s#mmari(ed by 1BI and Dovernment
of India from a remote perception looking at a bird;seyeview on t"e banking ind#stry as
a w"ole delinked from t"e rest of t"e economy& 1BI looks at t"e banking ind#stry;s
average on a macro basis) consolidating and tab#lating t"e data s#bmitted by different
instit#tions& It "as collected e%tensive statistics abo#t NPA in different financial sectors
like commercial banks) financial instit#tions) #rban cooperatives) NB:* etc& B#t still it is
BABASAB PATIL ?
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
a distant view of one o#tside t"e system and not t"e felt view of a s#ffering participant&
Individ#al banks in"erit different c#lt#res and t"ey finance diverse sectors of t"e
economy t"at do not possess identical attrib#tes& T"ere are distinct diversities as among
t"e +A p#blic sector banks t"emselves) between different geograp"ical regions and
between different types of c#stomers #sing bank credit& T"ere are t"ree weak nationali(ed
banks t"at "ave been identified& B#t t"ere are also correspondingly two better performing
banks like *orporation and 'B*& T"ere are also banks t"at "ave s#ccessf#lly contained
NPA and bro#g"t it to single digit like Syndicate veryone is
satisfied in blaming t"e ot"ers& Bank e%ec#tives "old ;willf#l defa#lters; responsible for
all t"e plag#e& Ind#stry and b#siness blames t"e government policies&
Important factrevealing information for eac" NPA acco#nt is t"e gap period
between t"e date) w"en t"e advance was originally made and t"e date of its becoming
NPA& If t"e gap is long) it is t"e case of a s#nset ind#stry& T"ings were all rig"t earlier) b#t
economic variance in trade cycles or market sentiments "ave created t"e NPA& *redit
c#stomers w"o are in NPA today) b#t for years were earlier rated as good performers and
creditwort"y clients ranging wit"in t"e top 35 or !55& Significant part of t"e NPA is on
acco#nt of clo#t banking or willf#lly given bad loans& Infant mortality in credit is solely
on acco#nt of "#man factors and absence of "#man integrity&
BABASAB PATIL !5
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
*redit to different sectors given by t"e PSB-s in fact represents different prod#cts&
Advance to weaker sections below 1s&+3555B represents t"e act#al social banking& NPA
in t"is sector forms ? T' !5E of t"e gross amo#nt& Advance to agric#lt#re) SSI and big
ind#stries eac" calls for different strategies in terms of credit assessment, credit delivery,
project implementation, and post advance supervision& NPA in different sector is not
ca#sed by t"e same res#ltant factors& *ontaining $#ant#m of NPA is t"erefore to be
programmed by a sectorwise strategy involving a role of t"e actively engaged
participants w"o can tell w"ere t"e boot pinc"es in eac" case& B#siness and ind#stry "as
e$#al responsibility to accept acco#ntability for containment of NPA& @any of t"e present
defa#lters were once tr#sted and val#ed c#stomers of t"e banks& 7"y "ave t"ey become
#nreliable now) or "ave t"eyI
T"e credit portfolio of a nationali(ed bank also incl#des a n#mber of lowrisk and
riskfree segments) w"ic" cannot create NPA& Small personal loans against banks; own
deposits and ot"er tangible and easily marketable sec#rities pledged to t"e bank and "eld
in its c#stody are of t"is category& S#c" small loans are #niversally given in almost all t"e
branc"es and "ence t"e aggregate constit#tes a significant fig#re& T"en t"ere is food
credit given to :*I for food proc#rement and similar credits given to ma/or p#blic
8tilities and P#blic Sector 8ndertakings of t"e *entral Dovernment& It is only t"e
resid#al fragments of Bank credit t"at are e%posed to credit fail#res and reasons for NPA
can be ascertained by scr#tini(ing t"is segment&
Secondly NPA is not a dilemma facing e%cl#sively t"e Bankers& It is in fact an all
pervasive national sco#rge swaying t"e entire Indian economy& NPA is a sore t"roat of t"e
Indian economy as a w"ole& T"e banks are only t"e #ltimate victims) w"ere life cycle of
t"e vir#s is terminated&
Now) "ow does t"e Dovernment s#fferI 7"at abo#t t"e rec#rring loss of reven#e
by way of ta%es) e%cise to t"e government on acco#nt of clos#re of several lak"s of
erstw"ile vibrant ind#strial #nits and inefficient #sage of costly ind#strial infrastr#ct#re
BABASAB PATIL !!
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
erected wit" considerable investment by t"e nationI As per statistics collected t"ree years
back t"ere are over two and "alf million small ind#strial #nits representing over A5
percent of t"e total n#mber of ind#strial #nits& A ma/ority of t"e ind#strial work force
finds employment "ere and t"e sector;s contrib#tion to ind#strial o#tp#t is s#bstantial and
is estimated at over 03 percent w"ile its s"are of e%ports is also val#ed to be aro#nd 25
percent& '#t of t"e +&3 million) abo#t !5E of t"e small ind#stries are reported to be sick
involving a bank credit o#tstanding aro#nd 1s&3555 to 6555 *rores) at t"at period& It may
be even more now& T"ese closed #nits represent some t"o#sands of displaced workers
Previo#sly en/oying gainf#l employment& >ac" closed #nit w"et"er large) medi#m or
small occ#pies costly developed ind#strial land& Several items of mac"inery form sec#rity
for t"e NPA acco#nts s"o#ld eit"er be lying idle or /#nking o#t& In ot"er words) large
val#e of land) mac"inery and money are locked #p in ind#strial sickness& T"ese are t"e
assets created t"at "ave t#rned #nprod#ctive and t"ese represent t"e real p"ysical NPA)
w"ic" indirectly are reflected in t"e financial statements of nationali(ed banks) as t"e
#ltimate financiers of t"ese assets& In t"e final analysis it represents instability in ind#stry&
NPA represents t"e owes of t"e credit recipients) in t#rn transferred and parked wit" t"e
banks&
1ecogni(ing NPA as a sore t"roat of t"e Indian economy) t"e field level
participants s"o#ld first address t"emselves to find t"e sol#tion& 7"y not representatives
of ind#stries and commerce and t"at of t"e Indian Banks; Association come toget"er and
candidly analy(e and find an everlasting sol#tion "eralding t"e real spirit of dereg#lation
and decentrali(ation of management in banking sector) and accepting selfdiscipline and
selfrelianceI 7"at are t"e deficiencies in credit delivery t"at leads to its mis#se) ab#se or
lossI .ow to c"eck mis#se and ab#se at so#rceI .ow to deal wit" erring *orporateI In
s"ort) t"e f#nctional staff of t"e Bank along wit" t"e representatives of b#siness and
ind#stry "as to accept a candid introspection and arrive at a code of discipline in any final
sol#tion& And preventive action to be s#ccessf#l s"o#ld start from t"e creditrecipient
level and t"en e%tend to t"e bankers& 1BI and Dovernment of India can positively
facilitate t"e process by providing enabling meas#res& 9o not try to set rig"t ind#stry and
BABASAB PATIL !+
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
banks) b#t "elp ind#stry and banks to set rig"t t"emselves& T"e new tool of dereg#lated
approac" "as to be accepted in solving NPA&
*EAS(NS &(* T)E E3,STEN.E (& )-/E +E4E+ (& NPA0S ,N T)E
,ND,AN "AN1,N/ S2STE' 5,"S6:
T"e origin of t"e problem of b#rgeoning NPA-s lies in t"e $#ality of managing
credit risk by t"e banks concerned& 7"at is needed is "aving ade$#ate preventive
meas#res in place namely) fi%ing presanctioning appraisal responsibility and "aving an
effective postdisb#rsement s#pervision& Banks concerned s"o#ld contin#o#sly monitor
loans to identify acco#nts t"at "ave potential to become nonperforming&
To start wit") performance in terms of profitability is a benc"mark for any
b#siness enterprise incl#ding t"e banking ind#stry& .owever) increasing NPA-s "ave a
direct impact on banks profitability as legally banks are not allowed to book income on
s#c" acco#nts and at t"e same time banks are forced to make provision on s#c" assets as
per t"e 1eserve Bank of India SSH Balance from interest s#spense acco#nt !+,52
L>SSH 9I*D*B>*D* *laims received b#t pending for
ad/#stment
06
L>SSH Part payment received and kept in S#spense ABc +A+?
N>T N'N P>1:'1@IND ASS>TS +!,65
N>T NPA IN P>1*>NTAD> 5&A,E
T)E NA*AS,')AN .('',TTEE?S &,*ST *EP(*T
T"e salient feat#res of t"ese reforms incl#deH
• P"asing o#t of stat#tory preemption T"e SL1 re$#irement "ave been bro#g"t
down from 0?&3E to +3E and *11 re$#irement from ,&35E to 3&,3E& ntry of new private sector banks A new private sector banks "ave been set #p
wit" a view to ind#ce greater competition and for improving operational
efficiency of t"e banking system& *ompetition "as been introd#ced in a controlled
manner and today we "ave nine new private sector banks and 06 foreign banks in
India competing wit" t"e p#blic sector banks bot" in retail and corporate banking
• :#nctional a#tonomy T"e minim#m prescribed Dovernment e$#ity was bro#g"t
to 3!E& Nine nationali(ed banks raised 1s&+?33 crores from t"e market d#ring
!AA2+55!& Banks Boards "ave been given more powers in operational matters
s#c" as rationali(ation of branc"es) credit delivery and recr#itment of staff&
BABASAB PATIL ++
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
• .iving off of reg#latory and s#pervisory control Board for financial s#pervision
was set #p #nder t"e 1BI in !AA2 bif#rcating t"e reg#latory and s#pervisory
f#nctions&
NA*AS,')AN .('',TTEE@ SE.(ND *EP(*T
T"e Narasim"an *ommittee on Banking 1eforms) in its second report) "as
combined drastic s#rgery wit" a strong dose of medicine to c#re t"e ailing ind#stry& 'n
performing assets asier said t"an done)K says a
top banker& KAlready we do a lot of windowdressing& '#tstanding acco#nts are s"own as
BABASAB PATIL +0
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
priority lending to meet targets& 7e keep lending to defa#lters to roll over t"e NPA-s&
:i%ing #nrealistic targets will be co#nterprod#ctive&K
T"e committee "as recommended t"at banks s"o#ld not lend to defa#lters) b#t
bankers say t"at t"is is #nrealistic& T"ey claim t"at in t"e absence of fres" loans) t"e
defa#lting companies will close down) and leading to loss of /obs& K7ill t"at be
acceptableIK asks a banker& Bankers also complain t"at t"ey are forced by t"e Board for
Ind#strial and :inancial 1econstr#ction t"at at t"e meeting of t"e Board of 9irectors of
t"e company "eld on Oan#ary !6) +550) S"ri 1 N B"aradwa/) @anaging 9irector
of LI* "as been appointed as an Additional 9irector of t"e Bank wit" immediate
effect&
8TI Bank) t"e private sector bank "as opeaned a branc" at Nellore& T"e bank;s
*"airman and @anaging 9irector) 9r P&O& Nayak) ina#g#rating t"e bank branc"
at DT 1oad on @ay +6& Speaking on t"e occasion) 9r Nayak said) KT"is marks
anot"er step towards t"e e%tensive c#stomer banking foc#s t"at we are providing
across t"e co#ntry and reinforces o#r commitment to bring s#perior banking
services) marked by convenience and closeness to c#stomers&
8TI "as been a#t"orised to la#nc" !6 AT@s on t"e 7estern 1ailway Stations of
@#mbai 9ivision&
8TI filed s#it against financial instit#tions I:*I Ltd in t"e debt recovery trib#nal
at @#mbai to recover 1s&?3cr in d#es&
8TI bank made an entry to t"e
od *redit Programme) it "as made an entryinto t"e 3A cl#ster w"ic" incl#des private sector) p#blic sector) old private sector
and cooperative banks&
S"ri A/eet Prasad) Nminee of 8TI "as resigned as t"e director of t"e bank&
Banks *"airman and @9 9r&P&O&Nayak ina#g#rated a new branc" at Nellore&
8TI bank allots s"ares #nder >mployee Stock 'ption Sc"eme to its employees&
8TI Bank ties #p wit" 8Q govt f#nd for contract farming
BABASAB PATIL 22
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
S"ri B S Pandit) nominee of t"e Administrator of t"e Specified 8ndertaking of t"e
8nit Tr#st of India %c"ange 9esk
? International Banking
? @oney @arket 9esk
? *onstit#ent SDL :acility
? 1etail Dsec
? 9eposit 1ate
? Newsletter
?
reign >%c"angeBABASAB PATIL 3+
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
BABASAB PATIL 30
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
&indings
And
Analysis
BABASAB PATIL 32
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
Design of the study
Title of the project:
“Non Performing Assets and its impact on Profitaility of Ne! Private Sector
"an#s$%
Scope of study: Scope of my st#dy restricted only to , New Private Sector Banks NPA
data-s and Advances) and for *omparison of *redit risk pat" , old selected Private Banks
are taken&
Need &or Study:
• T"is st#dy will "elp to know t"e recent norms of NPA&
• T"is st#dy "elps to know "ow NPA *a#sing Problems to Banking Sector and
w"at mig"t be t"e sol#tion to overcome from t"is problem and also its impact on
Profitability of New Profit Banks&
STATE'ENT (& T)E P*("+E'
Profitability is considered as a benc"mark for eval#ating performance of any
b#siness enterprise incl#ding t"e banking ind#stry& .owever) increasing Non
Performing Assets) "ave a direct impact on profitability of banks and financial
instit#tions& Legally speaking banks and financial instit#tions are not allowed to book
income on s#c" acco#nt and at t"e same times t"ey are forced to make provision on s#c"
BABASAB PATIL 33
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
assets& So T"is pro/ect is #ndertaken to now impact of NPA on Profitability of New
Private Sector Banks&
(jectives of Study
6& To st#dy t"e 1BI norms on Non Performing Assets) and t"e vario#s reasons for
t"e e%istence of "#ge level of NPA in Indian banking&
,& To know t"e performance comparison of New Private Banks Non performing
asset for past 0 years&
?& To know t"e impact of non performing assets on profitability of New Private
Banks) and comparison of credit risk pat" of New Private Banks wit" , selected
'ld Private Banks&
A& To st#dy t"e vario#s steps taken by t"e banks to bring down t"e NPA-s in
respective bank branc"es&
!5& To recommend meas#res for Improving performance and red#ction of Non
Performing Assets&
'ethodology
Primary Data:
4iews of t"e concerned officials were gat"ered by directly interacting wit" t"em) and
s#c" data was fo#nd very #sef#l w"ile analy(ing and drawing concl#sions&
Secondary Data:
• 1ecent 1BI norms of NPA&
• IBA B#lletin 5f +55356 is referred to collect data for Net NPA) and Advances&
• 7eb site of 8TI Bank and ot"er 7eb sites&
BABASAB PATIL 36
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
Plan of analysis:
In t"is st#dy $#adrant analysis is #sed on t"e calc#lated fig#res&
+imitations:
• T"e st#dy is based mostly on secondary data&
• 9ata "as been drawn from /o#rnals) so information may not be complete&
•
r t"e analysis only t"e advances and NPA percentages of banks and operatingprofit) provisions and contingencies as a w"ole and net profit of New PSB-s are
taken into consideration&
,mpact of Provisions and .ontingencies on Net Profit of Ne! Private "an#s%
Performance comparison of Ne! Private Sector "an#s (perating Profit of B years
S No "an#s (perating Profit 5 in .rore6
=99B@9C =99C@9D =99D@9A
! Bank of Pan/ab LtdU !50 !A
+ *ent#rion Bank LtdU !+ 0! !2?
0 .9:* Bank Ltd !55? !022 !A,A
2 I*I*I Bank Ltd +2?! +A36 26A!
3 Ind#sind Bank Ltd& 223 25! ++3
6 Qotak @a"indra Bank Ltd& !+, !00 +!!
, 8TI Bank Ltd 6A? 366 AA2
? Ges Bank LS s#pervisory rating
system of 1BI&
BABASAB PATIL ,5
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
.redit ris# path of the Ne! Private "an#0s y .omparing !ith selected F (ld PS"0s
using >uadrant Analysis%
.redit ris# path of the Ne! Private "an#0s:
Ne! Private
"an#s
NPA to Net
Advances
5 I6
Advances5crores6 >uadrant
analysis
=99D =99A =99D =99A =99D =99A
Bank of Pan/ab LtdU
2&62 +2!, .L
*ent#rion Bank LtdU
+&2A !&!0 +!A2 6300 .L .L
.9:* Bank Ltd
5&+2 5&22 +3366 0,66! L. L.
I*I*I Bank Ltd
!&63 5&,+ A!253 !26!60 L. L.
Ind#sind Bank Ltd&
+&,! +&5A A555 A0!5 .L .L
Qotak @a"indra Bank
Ltd&
5&0, 5&+2 25!, 602A LL LL
8TI Bank Ltd
!&0A
5&A? !3650 ++0!2 LL LL
,nterpretation
BABASAB PATIL ,!
“Non Performing Assets and its impact on Profitability of
New Private Sector Banks”
.redit ris# path of the Ne! PS"0s: A >uadrant Analysis
In t"e c"art below an attempt is made to trace t"e relations"ip between NPA
proportion and t"e si(e of credit portfolio -AD*ANT TA"+E@ =99D
L>4>L
*1>9IT L>4>L
NPA
L'7 L'7 A4D=
&g& w"ile LL means low in credit si(e and low in NPA-s) L. implies low
in NPA and .ig" in credit si(e& T"e following facts are visible from t"e $#adrant tableH
4>L
*1>9IT L>4>L
NPA
L'7 L'7 A4D=