Description
The economic reforms in India started in early nineties, but their outcome is visible now. Major changes took place in the functioning of Banks in India only after liberalization, globalisation and privatisation. It has become very mandatory to study and to make a comparative analysis of services of Public sector Banks and Private Sector banks.
Abstract—The economic reforms in India started in early
nineties, but their outcome is visible now. Major changes took
place in the functioning of Banks in India only after
liberalization, globalisation and privatisation. It has become
very mandatory to study and to make a comparative analysis
of services of Public sector Banks and Private Sector banks.
Increased competition, new information technologies and
thereby declining processing costs, the erosion of product and
geographic boundaries, and less restrictive governmental
regulations have all played a major role for Public Sector
Banks in India to forcefully compete with Private and Foreign
Banks. this paper an attempt to analyze how efficiently Public
and Private sector banks have been managing NPA. We have
used statistical tools for projection of trend.
Index Terms—NPA, Profitability, Public Sector banks,
private Sector banks.
I. INTRODUCTION
The last decade has seen many positive developments in
the Indian banking sector. The policy makers, which
comprise the Reserve Bank of India (RBI), Ministry of
Finance and related government and financial sector
regulatory entities, have made several notable efforts to
improve regulation in the sector. The sector now compares
favourably with banking sectors in the region on metrics
like growth, profitability and non-performing assets (NPAs).
A few banks have established an outstanding track record of
innovation, growth and value creation. Banking in India was
defined under Section 5(A) as "any company which
transacts banking, business" and the purpose of banking
business defined under Section 5(B),"accepting deposits of
money from public for the purpose of lending or investing,
repayable on demand through cheque/draft or otherwise". In
the process of doing the above-mentioned primary functions,
they are also permitted to do other types of business referred
to as Utility Services for their customers (Banking
Regulation Act, 1949). During Bruisers' time, three
Presidencies’ Banks were opened in Bengal (1809),
Bombay (1840) and Madras (1843) with powers to issue
Notes. In the year 1921, due to banking crisis during First
World War, the three Presidency Banks merged to form
Imperial Bank of India. In the year 1955, after
Independence, Imperial Bank of India was nationalized and
renamed as State Bank of India (SBI) with a primary
mandate to go to rural areas by opening at least 400
branches immediately. In the year 1957, the seven banks
that were earlier catering to the rulers of different areas or
States viz., Patiala, Bikaner, Jaipur, Indore, Saurashtra,
Manuscript received May 17, 2011; revised June1, 2011.
Dr. Kajal Chaudhary, Assistant Professor Gurgaon College of
Engineering Deptt. Of Management VPO-Patreri, Bilaspur-Tauru Road,
Gurgaon-122413 (Haryana)
Hyderabad, Mysore, Travancore, became subsidiaries of
SBI. In 1969 and 1980, Government of India nationalized
14 and 6 major banks respectively. After the merger of New
Bank of India with Punjab National Bank during the era of
Financial Sector Reforms, the number of PSBs became 27,
which are under present study. This is reflected in their
market valuation. While the onus for this change lies mainly
with bank managements, an enabling policy and regulatory
framework will also be critical to their success.
Comparisons of bank performance based on financial ratios
suffer from the problem that financial ratios might overstate
performance because of inaccurate reporting of non-
performing assets (NPAs) or because NPAs tend to be lower
in the initial years in the case of newly established banks.
Stock prices may, however, capture performance more
accurately because markets, including ours, are reasonably
efficient in incorporating information that may escape
financial statements. The means of both unadjusted and
adjusted returns for each of the three categories of banks
were compared with returns to the Sensex – this gave the
relative returns for each category. Two important findings
emerged. The comparisons of stock price performance
suggest that, in the perception of the market, PSBs as a
category can withstand competition from today’s private
banks. This finding has important implications for policy. It
undermines the proposition that disinvestment, the mere
dilution of government equity in PSBs, cannot possibly
contribute to any improvement in performance and that
government control must cease altogether. Consequent to
disinvestment, PSBs have performed as well as the Sensex
and private sector banks. This suggests that listing on the
exchanges, a profit orientation, and a measure of autonomy
can together produce improvement in performance and that
a transfer of ownership is not a pre-condition for such
improvement all these were aimed at generating income or
employment to large number of rural masses comprising
weaker sections of society, artisans, and agriculturists and
self-employed persons including educated unemployed
youth. In India, till the eighties, the banks operated in a
protected environment characterized by administered
interest rates, high levels of pre-emption in the form of
reserve requirements and directed credit.
In the process, strategies of certain banks, especially
Public Sector Banks, are aiming to divide customers into
different segments on the basis of the type of service they
would like to render and also trying to segregate their
servicing counters in their respective branches to enable
customer to have easy access to a particular transaction.
"Electronic Clearing", "Tele-Banking", etc. This paper
explores an empirical approach to the analysis of Non-
Performing Assets (NPAs) of public and privates banks in
India. The NPAs are considered as an important parameter
Performance of Indian Public Sector Banks and Private
Sector Banks: A Comparative Study
Kajal Chaudhary and Monika Sharma
International Journal of Innovation, Management and Technology, Vol. 2, No. 3, June 2011
249
to judge the performance and financial health of banks. The
level of NPAs is one of the drivers of financial stability and
growth of the banking sector.
II. REVIEW OF LITERATURE
1) Roma Mitra, Shankar Ravi (2008), A stable and efficient
banking sector is an essential precondition to incr.ease the
economic level of a country. This paper tries to model and
evaluate the efficiency of 50 Indian banks. The
Inefficiency can be analyzed and quantified for every
evaluated unit. The aim of this paper is to estimate and
compare efficiency of the banking sector in India. The
analysis is supposed to verify or reject the hypothesis
whether the banking sector fulfils its intermediation
function sufficiently to compete with the global players.
The results are insightful to the financial policy planner as
it identifies priority areas for different banks, which can
improve the performance. This paper evaluates the
performance of Banking Sectors in India.
2) B.Satish Kumar (2008), in his article on an evaluation of
the financial performance of Indian private sector banks
wrote Private sector banks play an important role in
development of Indian economy. After liberalization the
banking industry underwent major changes. The economic
reforms totally have changed the banking sector. RBI
permitted new banks to be started in the private sector as
per the recommendation of Narashiman committee. The
Indian banking industry was dominated by public sector
banks. But now the situations have changed new
generation banks with used of technology and professional
management has gained a reasonable position in the
banking industry.
3) Brijesh K. Saho, Anandeep Singh (2007), this paper
attempts to examine, the performance trends of the Indian
commercial banks for the period: 1997-98 - 2004-05. Our
broad empirical findings are indicative in many ways.
First, the increasing average annual trends in technical
efficiency for all ownership groups indicate an affirmative
gesture about the effect of the reform process on the
performance of the Indian banking sector. Second, the
higher cost efficiency accrual of private banks over
nationalized banks indicate that nationalized banks,
though old, do not reflect their learning experience in their
cost minimizing behavior due to X-inefficiency factors
arising from government ownership. This finding also
highlights the possible stronger disciplining role played by
the capital market indicating a strong link between market
for corporate control and efficiency of private enterprise
assumed by property right hypothesis. And, finally,
concerning the scale elasticity behavior, the technology
and market-based results differ significantly supporting
the empirical distinction between returns to scale and
economies of scale, often used interchangeably in the
literature.
4) Vradi, Vijay, Mauluri, Nagarjuna (2006), in his study on´
Measurement of efficiency of bank in India concluded that
in modern world performance of banking is more
important to stable the economy .in order to see the
efficiency of Indian banks we have see the fore indicators
i.e. profitability, productivity, assets, quality and
financial management for all banks includes public sector,
private sector banks in India for the period 2000 and 1999
to 2002-2003. For measuring efficiency of banks we have
adopted development envelopment analysis and found that
public sectors banks are more efficient then other banks in
India
5) Petya Koeva (July 2003), in his study on The
Performance of Indian Banks. During Financial
Liberalization states that new empirical evidence on the
impact of financial liberalization on the performance of
Indian commercial banks. The analysis focuses on
examining the behavior and determinants of bank
intermediation costs and profitability during the
liberalization period. The empirical results suggest that
ownership type has a significant effect on some
performance indicators and that the observed increase in
competition during financial liberalization has been
associated with lower intermediation costs and
profitability of the Indian banks.
III. OBJECTIVES OF STUDY
1) To compare the performance of public and private
banks of India.
2) To find out trends in NPA Level.
3) To suggest various measures for NPA management.
IV. PUBLIC SECTOR BANKS
Public sector banks are the ones in which the government
has a major holding. They are divided into two groups i.e.
Nationalized Banks and State Bank of India and its
associates. Among them, there are 19 nationalized banks
and 8 State Bank of India associates. Public Sector Banks
dominate 75% of deposits and 71% of advances in the
banking industry. Public Sector Banks dominate
commercial banking India. These can be further classified
into:
1) State Bank of India
2) Nationalized banks
3) Regional Rural Banks
V. NATIONALIZED BANKS
In July 1969, 14 banks with a deposit base of Rs.50
crores or more were nationalized. Again in 1980, six more
private banks were nationalized, bringing up the number to
twenty. These Banks were:
(1) Bank of Baroda (2) Punjab National Bank (3) Bank of
India (4) Canara Bank (5) Central Bank of India (6)
Indian Bank (7) Indian Overseas Bank (8) Syndicate
Bank (9) UCO Bank (10) Allahabad Bank (11) United
Bank of India (12) Oriental Bank of Commerce (13)
Corporation Bank (14) Vijaya Bank (15) Dena Bank (16)
Bank of Maharashtra (17) Andhra Bank (18) Punjab &
Sind Bank (19 New Bank of India (20) Corporation
Bank.
International Journal of Innovation, Management and Technology, Vol. 2, No. 3, June 2011
250
TABLE: 1: NPA OF PUBLIC SECTOR BANKS
Sr.
No
Name of
the
Bank
Priority
Sector NPAs
Of which,
Agriculture
Of which
Small Scale
Industries
Of which,
others
Public Sector
NPAs
Non-Priority
Sector NPAs
Total
NPAs
Amt
% to
total
Amt
% to
total
Amt
% to
total
Amt
% to
total
Amt
% to
total
Amt
% to
total
Amt
15=(3+11+13)
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Public
Sector
Banks
30,848 53.8 8,330 14.5 11,537 20.1 10,981 19.2 524 0.9 25,929 45.3 57,301
Nationalised
Banks
19,908 56.1 5,741 16.2 8,668 24.4 5,499 15.5 280 0.8 15,283 43.1 35,470
1
Allahabad
Bank
713 58.4 215 17.6 311 25.4 187 15.3 119 9.8 389 31.9 1,221
2
Andhra
Bank
218 44.7 26 5.4 66 13.5 126 25.9 - - 270 55.3 488
3
Bank of
Baroda
1,444 65.8 636 29.0 530 24.1 279 12.7 85 3.9 667 30.4 2,196
4
Bank of
India
2,147 47.9 490 10.9 1,360 30.4 297 6.6 18 0.4 2317 51.7 4,481
5
Bank of
Maharashtra
795 65.7 232 19.2 363 30.0 200 16.6 - - 415 34.3 1,210
6
Canara
Bank
1,423 56.8 462 18.4 394 15.7 568 22.7 - - 1,081 43.2 2,505
7
Central
Bank of
India
1,658 67.5 421 17.1 922 37.5 315 12.8 8 0.3 792 32.2 2,458
8
Corporation
Bank
398 61.1 122 18.7 79 12.1 197 30.3 - - 253 38.9 651
9 Dena Bank 379 59.0 83 13.0 74 11.5 222 34.6 - - 263 41.0 642
10 Indian Bank 249 54.2 55 12.0 163 35.5 31 6.7 - - 210 45.8 459
11
Indian
Overseas
Bank
1,192 34.6 276 8.0 606 17.6 310 9.0 2 - 2248 65.3 3,442
12
Oriental
Bank of
Commerce
911 62.0 276 18.8 385 26.2 250 17.0 - - 558 38.0 1,469
13
Punjab &
Sind Bank
138 67.1 42 20.4 85 41.2 11 5.5 - - 68 32.9 206
14
Punjab
National
Bank
2,471 76.9 977 30.4 1165 36.3 328 10.2 4 0.1 739 23.0 3,214
15
Syndicate
Bank
1,091 54.4 176 8.8 238 11.9 677 33.8 12 0.6 902 45.0 2,005
16 UCO Bank 976 58.6 289 17.4 339 20.4 348 20.9 15 0.9 674 40.5 1,665
17
Union Bank
of India
1,632 61.3 369 13.9 895 33.6 367 13.8 - - 1032 38.7 2,664
18
United
Bank of
India
894 65.1 204 14.9 283 20.6 407 29.6 - - 478 34.9 1,372
19 Vijaya Bank 394 39.6 93 9.4 190 19.1 110 11.1 17 1.7 583 58.7 994
20
IDBI Bank
Ltd.
785 36.9 297 13.9 221 10.4 267 12.6 - - 1,344 63.1 2,129
State Bank
Group
10,940 50.1 2589 11.9 2,869 13.1 5,482 25.1 244 1.1 10,646 48.8 21,831
21
State Bank
of Bikaner
& Jaipur
269 43.9 7 1.1 124 20.2 139 22.6 - - 343 56.1 612
22
State Bank
of
Hyderabad
290 44.9 55 8.4 102 15.8 134 20.7 - - 356 55.1 646
23
State Bank
of India
9,073 50.9 2322 13.0 2168 12.2 4,583 25.7 235 1.3 8529 47.8 17836
24
State Bank
of Indore
210 42.6 19 3.8 57 11.6 134 27.1 - - 283 57.4 493
25
State Bank
of Mysore
291 49.0 43 7.2 120 20.1 129 21.6 3 0.5 301 50.5 595
26
State Bank
of Patiala
543 54.0 119 11.8 212 21.1 212 21.1 - - 463 46.0 1,007
27
State Bank
of
Travancore
264 41.1 25 3.8 87 13.6 152 23.7 6 1.0 372 57.9 642
International Journal of Innovation, Management and Technology, Vol. 2, No. 3, June 2011
251
TABLE: 2: NPA OF PRIVATE SECTOR BANKS
VI. PRIVATE SECTOR BANKS
Private sector banks came into existence to supplement
the performance of Public sector banks and serve the needs
of the economy better. As the public sector banks were
merely in the hands of the government, banks had no
incentive to make profits and improve the financial he Main
difference is only that Public follow the RBI Interest rules
strictly but Private banks could have some changes but only
after the approval from the RBI! Private sector banks are the
banks which are controlled by the private lenders with the
approval from the RBI their interest rates are slightly costly
as compared to Public sector banks.
VII. DIFFERENCE BETWEEN PUBLIC SECTOR BANKS &
SCHEDULE BANKS
Scheduled Banks in India constitute those banks which
have been included in the Second Schedule of Reserve Bank
of India (RBI) Act, 1934. RBI in turn includes only those
banks in this schedule which satisfy the criteria laid down
Sr.
No.
Name of the
Bank
Priority Sector
NPAs
Of which,
Agriculture
Of which Small
Scale
Industries
Of which,
others
Public Sector
NPAs
Non-Priority
Sector NPAs
TotalN
PAs
Amt % to
total
Amt % to
total
Amt % to
total
Amt % to
total
Amt % to
total
Amt % to
total
Amt
15=
(3+11+
13)
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Private Sector
Banks
4792 27.6 2023 11.6 1139 6.6 1630 9.4 - - 12592 72.4 17384
Old Private
Sector Banks
1613 44.7 269 7.4 475 13.2 869 24.1 - - 1999 55.3 3612
1 Bank of
Rajasthan Ltd.
61 20.9 7 2.5 42 14.4 12 4.1 - - 232 79.1 294
2 Catholic Syrian
bank Ltd.
62 41.7 7 4.6 32 21.4 23 15.7 - - 87 58.3 149
3 City Union
Bank Ltd.
41 44.2 16 17.1 9 9.7 16 17.3 - - 52 55.8 94
4 Dhana-Lakshmi
Bank Ltd.
35 45.6 4 5.3 6 7.3 26 33.0 - - 42 54.4 78
5 Federal Bank
Ltd.
440 53.6 65 8.0 18 2.2 356 43.4 - - 381 46.4 821
6 ING Vysya
Bank Ltd.
65 29.2 36 16.1 23 10.3 6 2.8 - - 159 70.8 224
7 J&K Bank Ltd. 286 61.8 32 7.0 54 11.7 199 43.2 - - 176 38.2 462
8 Karnataka
Bank Ltd.
324 59.0 51 9.2 172 31.2 102 18.6 - - 225 41.0 550
9 Karur Vysya
Bank Ltd.
68 29.0 7 2.9 53 22.7 8 3.4 - - 167 71.0 235
10 Lakshmi Vilas
Bank Ltd.
58 17.8 10 3.1 15 4.5 33 10.1 - - 267 82.2 325
11 Nainital Bank
Ltd.
17 73.4 8 34.9 2 9.2 7 29.4 - - 6 26.6 23
12 Ratnakar Bank
Ltd.
18 65.0 2 8.6 10 35.6 6 20.8 - - 10 35.0 28
13 SBI
Commercial
and
International
Bank Ltd.
2 62.4 - - - - 2 62.4 - - 1 37.6 3
14 South Indian
Bank Ltd.
88 41.7 12 5.7 27 12.9 49 23.0 - 123 58.3 211
15 Tamilnad
Mercantile Bank
Ltd.
46 40.2 10 9.0 12 10.6 24 20.6 - - 69 59.8 115
New Private
Sector Banks
3179 23.1 1754 12.7 664 4.8 760 5.5 - - 10594 76.9 13772
16 Axis Bank Ltd. 528 40.8 248 19.1 140 10.8 141 10.9 - - 767 59.2 1295
17 Development
Credit Bank
Ltd.
68 21.2 14 4.3 52 16.2 3 0.8 - - 251 78.8 319
18 HDFC Bank
Ltd.
400 22.1 110 6.1 276 15.3 14 0.8 - - 1407 77.9 1807
19 ICICI Bank
Ltd.
1946 21.0 1303 14.1 50 0.5 593 6.4 - - 7321 79.0 9267
20 Indusland Bank
Ltd.
84 33.0 31 12.0 46 18.1 8 3.0 - - 171 67.0 255
21 Kotak
Mahindra Bank
Ltd.
152 - 49 6.5 100 13.0 2 0.3 - - 616 80.2 767
22 Yes Bank Ltd. - - - - - - - - - 60 100.0 60
International Journal of Innovation, Management and Technology, Vol. 2, No. 3, June 2011
252
vide section 42 (6) (a) of the Act. As on 30th June, 1999,
there were 300 scheduled banks in India having a total
network of 64,918 branches. The scheduled commercial
banks in India comprise of State bank of India and its
associates (8), nationalized banks (19), foreign banks (45),
private sector banks (32), co-operative banks and regional
rural banks. Whereas Public sector Bank simply means a
banking entity which owned by Govt. of India any of state
govt’s. Thus all PSB's are scheduled (almost) but all
scheduled banks are not PSB's
VIII. NPA AND BANKS
Non-Performing Asset or NPA, It is called such as while
it is an "Asset", it does not bring substantial income to its
owner or is just dormant. Call it a white elephant if you
wish. Basically, it is having something that SHOULD work
but does not. It is supposed to make Non- Performing
Assets work. The RBI has issued guidelines to banks for
classification of assets into four categories.
A. Standard (Assets)
These are loans which do not have any problem are less
risk.
B .Substandard (Assets)
These are assets which come under the category of NPA
for a period of less than 12 months.
C.Doubtful (Assets)
These are NPA exceeding 12 months.
D. Loss (Assets)
Where loss has been identified by the bank or internal or
external auditors or the RBI inspection but the amount has
not been written off wholly.
IX. PROVISIONAL NORMS
Asset
Classification
Provision requirements
Standard assets (a) direct advances to agricultural & SME sectors at
0.25 per cent;
(b) residential housing loans beyond Rs. 20 lakh at 1
per cent;
(c) advances to specific sectors, i.e., personal loans
(including credit card
receivables), loans and advances qualifying as
Capital Market exposures,
Commercial Real Estate loans etc. at 2 per cent
(d) all other advances not included in (a), (b) and (c)
above, at 0.40 percent
Substandard
assets
10 per cent of the total out standings for substandard
assets.
Doubtful assets 20% - 50% of the secured portion depending on the
age of NPA, and 100% of the unsecured portion.
Loss assets It may be either written off or fully provided by the
bank. The entire asset should be written off.
The classification of assets of scheduled commercial bank.
A debt obligation where the borrower has not paid any
previously agreed upon interest and principal repayments to
the designated lender for an extended period of time. The
non performing asset is therefore not yielding any income to
the lender in the form of principal and interest payments. A
company's total sales revenue minus its cost of goods sold,
divided by the total sales revenue, expressed as a percentage.
The gross margin represents the percent of total sales
revenue that the company retains after incurring the direct
costs associated with producing the goods and services sold
by a company. The higher the percentage, the more the
company retains on each dollar of sales to service its other
costs and obligations. Loans and advances given by banks to
its customers is a asset to the bank. But, when repayment of
interest and Principal is overdue, such asset is classified as
NPA in the financial reports of banks. NPA is nothing but
NON PERFORMANCE ASSETS. Simply it’s a Bad Debt
to Bank.
TABLE: 3: ASSETS CLASSIFICATION OF PUBLIC SECTOR AND PRIVATE SECTOR BANKS
Bank group Year Standard assets Sub-standard
assets
Doubtful assets Loss assets
Amt %age Amt %age Amt %age Amt %age
1 2 3 4 5 6 7 8 9 10
1. Public sector banks
1.1 Nationalized banks
1.2 SBI Group
2009
2010
2009
2010
2009
2010
22,37,556
26,73,534
15,08,798
18,27,061
7,28,758
8,46,473
97.99
97.81
98.25
98.05
97.44
97.30
20,603
28,791
11,086
18,520
9,517
10,271
0.90
1.05
0.72
0.99
1.27
1.18
21,019
25,383
13,306
15,034
7,713
10,349
0.92
0.93
0.87
0.81
1.03
1.19
4,296
5,750
2,412
2,841
1,884
2,909
0.19
0.21
0.16
0.15
0.25
0.33
2. Private sector banks
2.1 Old private sector banks
2.2 New private sector banks
2009
2010
2009
2010
2009
2010
5,68,093
6,26,472
1,27,280
1,52,745
4,40,813
4,73,727
97.10
97.27
97.64
97.69
96.94
97.13
10,592
8,842
1,334
1,395
9,258
7,447
1.81
1.37
1.02
0.89
2.04
1.53
5,035
6,590
1,327
1,637
3,708
4,953
0.86
1.02
1.02
1.05
0.82
1.02
1,345
2,166
411
580
934
1,586
0.23
0.34
0.32
0.37
0.21
0.38
X. LIBERALISATION
In the early 1990s, the then Narsimha Rao government
embarked on a policy of Liberalization, licensing a small
number of private banks. These came to be known as New
Generation tech-savvy banks, and included Global Trust
Bank (the first of such new generation banks to be set up),
which later amalgamated with Oriental Bank of Commerce,
Axis Bank (earlier as UTI Bank), ICICI Bank and HDFC
Bank. This move, along with the rapid growth in the
International Journal of Innovation, Management and Technology, Vol. 2, No. 3, June 2011
253
economy of India, revitalized the banking sector in India,
which has seen rapid growth with strong contribution from
all the three sectors of banks, namely, government banks,
private banks and foreign banks.
The next stage for the Indian banking has been set up
with the proposed relaxation in the norms for Foreign Direct
Investment, where all Foreign Investors in banks may be
given voting rights which could exceed the present cap of
10%, at present it has gone up to 74% with some restrictions.
Currently (2007), banking in India is generally fairly mature
in terms of supply, product range and reach-even though
reach in rural India still remains a challenge for the private
sector and foreign banks. In terms of quality of assets and
capital adequacy, Indian banks are considered to have clean,
strong and transparent balance sheets relative to other banks
in comparable economies in its region. The Reserve Bank of
India is an autonomous body, with minimal pressure from
the government. The stated policy of the Bank on the Indian
Rupee is to manage volatility but without any fixed
exchange rate-and this has mostly been true.
TABLE: 4: PROMOTIONAL STRATEGIES BY PUBLIC AND PRIVATE SECTOR BANKS
Promotional Tool
Public Sector Bank Private Sector Bank
Advertising on T.V. Yes Yes
Advertising in Newspaper Yes Yes
Personal Selling/Personal Contact No Yes
In Journals and Magazines Yes Yes
Tele Calling by Sales Persons No Yes
Outdoor Advertising Hoardings etc Yes Yes
Schemes/Gifts/Prizes for Customers No Yes
Public Relations/ Events/Programmes Yes Yes
Online Marketing/ E-Mail Yes But Few Yes
Pamphlets/Propaganda No Yes
Letter/Mail/ with Relevant Material No Yes
Publishing News in Newspapers Yes But Few Yes
The new policy shook the Banking sector in India
completely. Bankers, till this time, were used to the 4-6-4
method (Borrow at 4%; Lend at 6%; Go. home at 4) of
functioning. The new wave ushered in a modern outlook
and tech-savvy methods of working for traditional banks.
All this led to the retail boom in India. People not just
demanded more from their banks but also received more
With the growth in the Indian economy expected to be
strong for quite some time-especially in its services sector-
the demand for banking services, especially retail banking,
mortgages and investment services are expected to be strong.
One may also expect M&As, takeovers, and asset sales. In
March 2006, the Reserve Bank of India allowed Warburg
Pincus to increase its stake in Kotak Mahindra Bank (a
private sector bank) to 10%. This is the first time an investor
has been allowed to hold more than 5% in a private sector
bank since the RBI announced norms in 2005 that any stake
exceeding 5% in the private sector banks would need to be
vetted by them. In recent years critics have charged that the
non-government owned banks are too aggressive in their
loan recovery efforts in connection with housing, vehicle
and personal loans. There are press reports that the banks'
loan recovery efforts have driven defaulting borrowers to
suicide.
XI. CLASSIFICATION OF BANKS
1) Nationalized Banks major stake is with GOI like SBI.
2) Private sector Banks major stake is with share holder
like ICICI.
3) Cooperative sector Banks are generally owned by trust
kind of setup like national cooperative bank.
4) RRB regional rural bank for the development of
banking in rural area generally owned by big nationalized
bank like Corp Gramin Bank
5) MNC Banks having offices outside India like CITI
Bank
XII. SUGGESTIONS
Based on the study conducted, there are some of the
suggestions given by the customers of how the modern
banking should be. These are the comment given by them
about the improvement of the banking sector in India.
1) Banks should obey the RBI norms and provide
facilities as per the norms, which are not being followed by
the banks. While the customer must be given prompt
services and the bank officer should not have any fear on
mind to provide the facilities as per RBI norms to the units
going sick.
2) Banks should increase the rate of saving account
3) Banks should provide loan at the lower interest rate
and education loans should be given with ease without
much documentation. All the banks must provide loans
against shares.
4) Fair dealing with the customers. More contribution
from the employee of the bank. The staff should be co-
operative, friendly and must be capable of understanding the
problems of customers
5) Internet banking facility must be made available in all
the banks.
6) Prompt dealing with permanent customers and speedy
transaction without harassing the customers
7) Each section of every bank should be computerized
even in rural areas also.
8) Real time gross settlement can play a very important
International Journal of Innovation, Management and Technology, Vol. 2, No. 3, June 2011
254
role.
9) More ATM coverage should be provided for the
convenience of the customers.
10) No limit on cash withdrawals on ATM cards.
11) The bank should bring out new schemes at time-to-
time so that more people can be attracted. Even some gifts
and prizes may be offered to the customers for their
retention.
12) 24 hours banking should be induced so as to facilitate
the customers who may not have a free time in the daytime.
It will help in facing the competition more effectively.
13) The charges for saving account opening are high, so
they should also be reduced.
14) Customers generally complain that full knowledge is
not granted to them. Thus the bank should properly disclose
the features of the product and services to the customers.
Moreover door to door services can also be introduced by
bank.
15) The need of the customer should properly be
understood so that customer feels satisfied. The relationship
value should be maintained.
16) The branch should promote cooperation and
coordination among employees which help them in efficient
working.
17) Maintenance of proper hierarchy should be done. A
good hierarchy set up can ensure better results within the
bank.
Banking sector is improving by leaps but still it needs to
be improved. Proper and efficient relationship staffs having
knowledge for one stop banking, customer friendly
atmosphere, and better rate of interest are need of the hour.
the concept of privatization has overall improved the
services in all the banks. Home banking will be order of the
day.
XIII. RECOMMENDATIONS FOR REDUCING
NPAS
1) Effective and regular follow-up of the end use of the
funds sanctioned is required to ascertain any
embezzlement or diversion of funds. This process can be
undertaken every quarter so that any account converting
to NPA can be properly accounted for.
2) Combining traditional wisdom with modern statistical
tools like Value-at-risk analysis and Markov Chain
Analysis should be employed to assess the borrowers.
This is to be supplemented by information sharing
among the bankers about the credit history of the
borrower. In case of new borrowers, especially corporate
borrowers, proper analysis of the cash flow statement of
last five years is to be done carefully.
3) A healthy Banker-Borrower relationship should be
developed. Many instances have been reported about
forceful recovery by the banks, which is against
corporate ethics. Debt recovery will be much easier in a
congenial environment.
4) Assisting the borrowers in developing his
entrepreneurial skills will not only establish a good
relation between the borrowers but also help the bankers
to keep a track of their funds.
5) Countries such as Korea, China, Japan, Taiwan have a
well functioning Asset reconstruction/Recovery
mechanism wherein the bad assets are sold to an Asset
Reconstruction Company (ARC) at an agreed upon price.
In India, there is an absence of such mechanism and
whatever exists, it is still in nascent stage. One problem
that can be accorded is the pricing of such loans.
Therefore, there is a need to develop a common
prescription for pricing of distressed assets so that they
can be easily and quickly disposed. The ARCs should
have clear ‘financial acquisition policy’ and guidelines
relating to proper diligence and valuation of NPA
portfolio.
6) Some tax incentives like capital gain tax exemption,
carry forward the losses to set off the same with other
income of the Qualified Institutional Borrowers (QIBs)
should be granted so as to ensure their active
participation by way of investing sizeable amount in
distressed assets of banks and financial institutions.
7) So far the Public Sector Banks have done well as far as
lending to the priority sector is concerned. However, it is
not enough to make lending to this sector mandatory; it
must be made profitable by sharply reducing the
transaction costs. This entails faster embracing of
technology and minimizing documentation.
8) Commercial Banks should be allowed to come up with
their own measures to address the problem of NPAs.
This may include waiving and reducing the principal and
interest on such loans, or extending the loans, or settling
the loan accounts. They should be fully authorized and
they should be able to apply all the preferential policies
granted to the asset management companies.
9) Another way to manage the NPAs by the banks is
Compromise Settlement Schemes or One Time
Settlement Schemes. However, under such schemes the
banks keep the actual amount recovered secret. Under
these circumstances, it is necessary to bring more
transparency in such deals so that any flaw could be
removed.
XIV. CONCLUSION
It is right time to take suitable and stringent measures to
get rid of NPA problem. An efficient management
information system should be developed. The bank staff
involved in sanctioning the advances should be trained
about the proper documentation and charge of securities and
motivated to take measures in preventing advances turning
into NPA. Public banks must pay attention on their
functioning to compete private banks. Banks should be well
versed in proper selection of borrower/project and in
analyzing the financial statement
REFERENCES
[1] A.V. Aruna Kumari (2002), “Economic Reforms and Performance of
Indian Banking: A Cross Structural Analysis”, Indian Economic
Panorama, A Quarterly Journal of Agriculture, Industry, Trade and
Commerce, Special Banking Issue, pp.19-21.
[2] A.K. Trivedi (2002), “Economic Reforms and Banking Scenario: An
Analysis”, Indian Economic Panorama, A Quarterly Journal of
Agriculture, Industry, Trade and Commerce, Special Banking Issue,
pp.6-8
[3] Chandrasekhar, C.P. 2009. How sound is Indian banking. The
Economic & Political Weekly. May, pp. 8
International Journal of Innovation, Management and Technology, Vol. 2, No. 3, June 2011
255
[4] Dr. Vibha Jain: Non-Performing Assets in commercial Banks:
Regal Publication, New Delhi,1
st
Edition 2007p p78-79
[5] Hallinan, Joseph T. (2003), “Bigger Banks. Better Deals?”, Wall
Street Journal - Eastern Edition, Vol. 242, Issue 84, pp.D1-D3
[6] Reserve Bank of India, master circular on prudential norms on
income recognition. Asset classification and provisioning.
[7] Subramanium, K. 1997. Banking Reformsinindia. TMH Publishing
Co. Ltd., New Delhi.
[8] Sagar R. Dave, performance evaluation in Indian banking.
[9] WELLS Fargo & Co. (2003), “Big Banks Report Strong Gains, Led
by Wells Fargo, Bank One”, Wall Street Journal - Eastern Edition,
Vol. 242, Issue 80, p.C5
[10] Question 366, Written Answers to Questions, Parliamentary sessions,
09.08.91, [36] Rime, Bertrand and Stiroh, Kevin J. (2003), “The
Performance of Universal Banks: Evidence from Switzerland”,
Journal of Banking & Finance; Vol. 27, Issue 11, pp.2121-51.
Monika Sharma, photograph and biography not available at the
timeofpublishing.
Kajal Chaudhary, photograph and biography not available at the time
ofpublishing.
International Journal of Innovation, Management and Technology, Vol. 2, No. 3, June 2011
256
doc_379858627.pdf
The economic reforms in India started in early nineties, but their outcome is visible now. Major changes took place in the functioning of Banks in India only after liberalization, globalisation and privatisation. It has become very mandatory to study and to make a comparative analysis of services of Public sector Banks and Private Sector banks.
Abstract—The economic reforms in India started in early
nineties, but their outcome is visible now. Major changes took
place in the functioning of Banks in India only after
liberalization, globalisation and privatisation. It has become
very mandatory to study and to make a comparative analysis
of services of Public sector Banks and Private Sector banks.
Increased competition, new information technologies and
thereby declining processing costs, the erosion of product and
geographic boundaries, and less restrictive governmental
regulations have all played a major role for Public Sector
Banks in India to forcefully compete with Private and Foreign
Banks. this paper an attempt to analyze how efficiently Public
and Private sector banks have been managing NPA. We have
used statistical tools for projection of trend.
Index Terms—NPA, Profitability, Public Sector banks,
private Sector banks.
I. INTRODUCTION
The last decade has seen many positive developments in
the Indian banking sector. The policy makers, which
comprise the Reserve Bank of India (RBI), Ministry of
Finance and related government and financial sector
regulatory entities, have made several notable efforts to
improve regulation in the sector. The sector now compares
favourably with banking sectors in the region on metrics
like growth, profitability and non-performing assets (NPAs).
A few banks have established an outstanding track record of
innovation, growth and value creation. Banking in India was
defined under Section 5(A) as "any company which
transacts banking, business" and the purpose of banking
business defined under Section 5(B),"accepting deposits of
money from public for the purpose of lending or investing,
repayable on demand through cheque/draft or otherwise". In
the process of doing the above-mentioned primary functions,
they are also permitted to do other types of business referred
to as Utility Services for their customers (Banking
Regulation Act, 1949). During Bruisers' time, three
Presidencies’ Banks were opened in Bengal (1809),
Bombay (1840) and Madras (1843) with powers to issue
Notes. In the year 1921, due to banking crisis during First
World War, the three Presidency Banks merged to form
Imperial Bank of India. In the year 1955, after
Independence, Imperial Bank of India was nationalized and
renamed as State Bank of India (SBI) with a primary
mandate to go to rural areas by opening at least 400
branches immediately. In the year 1957, the seven banks
that were earlier catering to the rulers of different areas or
States viz., Patiala, Bikaner, Jaipur, Indore, Saurashtra,
Manuscript received May 17, 2011; revised June1, 2011.
Dr. Kajal Chaudhary, Assistant Professor Gurgaon College of
Engineering Deptt. Of Management VPO-Patreri, Bilaspur-Tauru Road,
Gurgaon-122413 (Haryana)
Hyderabad, Mysore, Travancore, became subsidiaries of
SBI. In 1969 and 1980, Government of India nationalized
14 and 6 major banks respectively. After the merger of New
Bank of India with Punjab National Bank during the era of
Financial Sector Reforms, the number of PSBs became 27,
which are under present study. This is reflected in their
market valuation. While the onus for this change lies mainly
with bank managements, an enabling policy and regulatory
framework will also be critical to their success.
Comparisons of bank performance based on financial ratios
suffer from the problem that financial ratios might overstate
performance because of inaccurate reporting of non-
performing assets (NPAs) or because NPAs tend to be lower
in the initial years in the case of newly established banks.
Stock prices may, however, capture performance more
accurately because markets, including ours, are reasonably
efficient in incorporating information that may escape
financial statements. The means of both unadjusted and
adjusted returns for each of the three categories of banks
were compared with returns to the Sensex – this gave the
relative returns for each category. Two important findings
emerged. The comparisons of stock price performance
suggest that, in the perception of the market, PSBs as a
category can withstand competition from today’s private
banks. This finding has important implications for policy. It
undermines the proposition that disinvestment, the mere
dilution of government equity in PSBs, cannot possibly
contribute to any improvement in performance and that
government control must cease altogether. Consequent to
disinvestment, PSBs have performed as well as the Sensex
and private sector banks. This suggests that listing on the
exchanges, a profit orientation, and a measure of autonomy
can together produce improvement in performance and that
a transfer of ownership is not a pre-condition for such
improvement all these were aimed at generating income or
employment to large number of rural masses comprising
weaker sections of society, artisans, and agriculturists and
self-employed persons including educated unemployed
youth. In India, till the eighties, the banks operated in a
protected environment characterized by administered
interest rates, high levels of pre-emption in the form of
reserve requirements and directed credit.
In the process, strategies of certain banks, especially
Public Sector Banks, are aiming to divide customers into
different segments on the basis of the type of service they
would like to render and also trying to segregate their
servicing counters in their respective branches to enable
customer to have easy access to a particular transaction.
"Electronic Clearing", "Tele-Banking", etc. This paper
explores an empirical approach to the analysis of Non-
Performing Assets (NPAs) of public and privates banks in
India. The NPAs are considered as an important parameter
Performance of Indian Public Sector Banks and Private
Sector Banks: A Comparative Study
Kajal Chaudhary and Monika Sharma
International Journal of Innovation, Management and Technology, Vol. 2, No. 3, June 2011
249
to judge the performance and financial health of banks. The
level of NPAs is one of the drivers of financial stability and
growth of the banking sector.
II. REVIEW OF LITERATURE
1) Roma Mitra, Shankar Ravi (2008), A stable and efficient
banking sector is an essential precondition to incr.ease the
economic level of a country. This paper tries to model and
evaluate the efficiency of 50 Indian banks. The
Inefficiency can be analyzed and quantified for every
evaluated unit. The aim of this paper is to estimate and
compare efficiency of the banking sector in India. The
analysis is supposed to verify or reject the hypothesis
whether the banking sector fulfils its intermediation
function sufficiently to compete with the global players.
The results are insightful to the financial policy planner as
it identifies priority areas for different banks, which can
improve the performance. This paper evaluates the
performance of Banking Sectors in India.
2) B.Satish Kumar (2008), in his article on an evaluation of
the financial performance of Indian private sector banks
wrote Private sector banks play an important role in
development of Indian economy. After liberalization the
banking industry underwent major changes. The economic
reforms totally have changed the banking sector. RBI
permitted new banks to be started in the private sector as
per the recommendation of Narashiman committee. The
Indian banking industry was dominated by public sector
banks. But now the situations have changed new
generation banks with used of technology and professional
management has gained a reasonable position in the
banking industry.
3) Brijesh K. Saho, Anandeep Singh (2007), this paper
attempts to examine, the performance trends of the Indian
commercial banks for the period: 1997-98 - 2004-05. Our
broad empirical findings are indicative in many ways.
First, the increasing average annual trends in technical
efficiency for all ownership groups indicate an affirmative
gesture about the effect of the reform process on the
performance of the Indian banking sector. Second, the
higher cost efficiency accrual of private banks over
nationalized banks indicate that nationalized banks,
though old, do not reflect their learning experience in their
cost minimizing behavior due to X-inefficiency factors
arising from government ownership. This finding also
highlights the possible stronger disciplining role played by
the capital market indicating a strong link between market
for corporate control and efficiency of private enterprise
assumed by property right hypothesis. And, finally,
concerning the scale elasticity behavior, the technology
and market-based results differ significantly supporting
the empirical distinction between returns to scale and
economies of scale, often used interchangeably in the
literature.
4) Vradi, Vijay, Mauluri, Nagarjuna (2006), in his study on´
Measurement of efficiency of bank in India concluded that
in modern world performance of banking is more
important to stable the economy .in order to see the
efficiency of Indian banks we have see the fore indicators
i.e. profitability, productivity, assets, quality and
financial management for all banks includes public sector,
private sector banks in India for the period 2000 and 1999
to 2002-2003. For measuring efficiency of banks we have
adopted development envelopment analysis and found that
public sectors banks are more efficient then other banks in
India
5) Petya Koeva (July 2003), in his study on The
Performance of Indian Banks. During Financial
Liberalization states that new empirical evidence on the
impact of financial liberalization on the performance of
Indian commercial banks. The analysis focuses on
examining the behavior and determinants of bank
intermediation costs and profitability during the
liberalization period. The empirical results suggest that
ownership type has a significant effect on some
performance indicators and that the observed increase in
competition during financial liberalization has been
associated with lower intermediation costs and
profitability of the Indian banks.
III. OBJECTIVES OF STUDY
1) To compare the performance of public and private
banks of India.
2) To find out trends in NPA Level.
3) To suggest various measures for NPA management.
IV. PUBLIC SECTOR BANKS
Public sector banks are the ones in which the government
has a major holding. They are divided into two groups i.e.
Nationalized Banks and State Bank of India and its
associates. Among them, there are 19 nationalized banks
and 8 State Bank of India associates. Public Sector Banks
dominate 75% of deposits and 71% of advances in the
banking industry. Public Sector Banks dominate
commercial banking India. These can be further classified
into:
1) State Bank of India
2) Nationalized banks
3) Regional Rural Banks
V. NATIONALIZED BANKS
In July 1969, 14 banks with a deposit base of Rs.50
crores or more were nationalized. Again in 1980, six more
private banks were nationalized, bringing up the number to
twenty. These Banks were:
(1) Bank of Baroda (2) Punjab National Bank (3) Bank of
India (4) Canara Bank (5) Central Bank of India (6)
Indian Bank (7) Indian Overseas Bank (8) Syndicate
Bank (9) UCO Bank (10) Allahabad Bank (11) United
Bank of India (12) Oriental Bank of Commerce (13)
Corporation Bank (14) Vijaya Bank (15) Dena Bank (16)
Bank of Maharashtra (17) Andhra Bank (18) Punjab &
Sind Bank (19 New Bank of India (20) Corporation
Bank.
International Journal of Innovation, Management and Technology, Vol. 2, No. 3, June 2011
250
TABLE: 1: NPA OF PUBLIC SECTOR BANKS
Sr.
No
Name of
the
Bank
Priority
Sector NPAs
Of which,
Agriculture
Of which
Small Scale
Industries
Of which,
others
Public Sector
NPAs
Non-Priority
Sector NPAs
Total
NPAs
Amt
% to
total
Amt
% to
total
Amt
% to
total
Amt
% to
total
Amt
% to
total
Amt
% to
total
Amt
15=(3+11+13)
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Public
Sector
Banks
30,848 53.8 8,330 14.5 11,537 20.1 10,981 19.2 524 0.9 25,929 45.3 57,301
Nationalised
Banks
19,908 56.1 5,741 16.2 8,668 24.4 5,499 15.5 280 0.8 15,283 43.1 35,470
1
Allahabad
Bank
713 58.4 215 17.6 311 25.4 187 15.3 119 9.8 389 31.9 1,221
2
Andhra
Bank
218 44.7 26 5.4 66 13.5 126 25.9 - - 270 55.3 488
3
Bank of
Baroda
1,444 65.8 636 29.0 530 24.1 279 12.7 85 3.9 667 30.4 2,196
4
Bank of
India
2,147 47.9 490 10.9 1,360 30.4 297 6.6 18 0.4 2317 51.7 4,481
5
Bank of
Maharashtra
795 65.7 232 19.2 363 30.0 200 16.6 - - 415 34.3 1,210
6
Canara
Bank
1,423 56.8 462 18.4 394 15.7 568 22.7 - - 1,081 43.2 2,505
7
Central
Bank of
India
1,658 67.5 421 17.1 922 37.5 315 12.8 8 0.3 792 32.2 2,458
8
Corporation
Bank
398 61.1 122 18.7 79 12.1 197 30.3 - - 253 38.9 651
9 Dena Bank 379 59.0 83 13.0 74 11.5 222 34.6 - - 263 41.0 642
10 Indian Bank 249 54.2 55 12.0 163 35.5 31 6.7 - - 210 45.8 459
11
Indian
Overseas
Bank
1,192 34.6 276 8.0 606 17.6 310 9.0 2 - 2248 65.3 3,442
12
Oriental
Bank of
Commerce
911 62.0 276 18.8 385 26.2 250 17.0 - - 558 38.0 1,469
13
Punjab &
Sind Bank
138 67.1 42 20.4 85 41.2 11 5.5 - - 68 32.9 206
14
Punjab
National
Bank
2,471 76.9 977 30.4 1165 36.3 328 10.2 4 0.1 739 23.0 3,214
15
Syndicate
Bank
1,091 54.4 176 8.8 238 11.9 677 33.8 12 0.6 902 45.0 2,005
16 UCO Bank 976 58.6 289 17.4 339 20.4 348 20.9 15 0.9 674 40.5 1,665
17
Union Bank
of India
1,632 61.3 369 13.9 895 33.6 367 13.8 - - 1032 38.7 2,664
18
United
Bank of
India
894 65.1 204 14.9 283 20.6 407 29.6 - - 478 34.9 1,372
19 Vijaya Bank 394 39.6 93 9.4 190 19.1 110 11.1 17 1.7 583 58.7 994
20
IDBI Bank
Ltd.
785 36.9 297 13.9 221 10.4 267 12.6 - - 1,344 63.1 2,129
State Bank
Group
10,940 50.1 2589 11.9 2,869 13.1 5,482 25.1 244 1.1 10,646 48.8 21,831
21
State Bank
of Bikaner
& Jaipur
269 43.9 7 1.1 124 20.2 139 22.6 - - 343 56.1 612
22
State Bank
of
Hyderabad
290 44.9 55 8.4 102 15.8 134 20.7 - - 356 55.1 646
23
State Bank
of India
9,073 50.9 2322 13.0 2168 12.2 4,583 25.7 235 1.3 8529 47.8 17836
24
State Bank
of Indore
210 42.6 19 3.8 57 11.6 134 27.1 - - 283 57.4 493
25
State Bank
of Mysore
291 49.0 43 7.2 120 20.1 129 21.6 3 0.5 301 50.5 595
26
State Bank
of Patiala
543 54.0 119 11.8 212 21.1 212 21.1 - - 463 46.0 1,007
27
State Bank
of
Travancore
264 41.1 25 3.8 87 13.6 152 23.7 6 1.0 372 57.9 642
International Journal of Innovation, Management and Technology, Vol. 2, No. 3, June 2011
251
TABLE: 2: NPA OF PRIVATE SECTOR BANKS
VI. PRIVATE SECTOR BANKS
Private sector banks came into existence to supplement
the performance of Public sector banks and serve the needs
of the economy better. As the public sector banks were
merely in the hands of the government, banks had no
incentive to make profits and improve the financial he Main
difference is only that Public follow the RBI Interest rules
strictly but Private banks could have some changes but only
after the approval from the RBI! Private sector banks are the
banks which are controlled by the private lenders with the
approval from the RBI their interest rates are slightly costly
as compared to Public sector banks.
VII. DIFFERENCE BETWEEN PUBLIC SECTOR BANKS &
SCHEDULE BANKS
Scheduled Banks in India constitute those banks which
have been included in the Second Schedule of Reserve Bank
of India (RBI) Act, 1934. RBI in turn includes only those
banks in this schedule which satisfy the criteria laid down
Sr.
No.
Name of the
Bank
Priority Sector
NPAs
Of which,
Agriculture
Of which Small
Scale
Industries
Of which,
others
Public Sector
NPAs
Non-Priority
Sector NPAs
TotalN
PAs
Amt % to
total
Amt % to
total
Amt % to
total
Amt % to
total
Amt % to
total
Amt % to
total
Amt
15=
(3+11+
13)
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Private Sector
Banks
4792 27.6 2023 11.6 1139 6.6 1630 9.4 - - 12592 72.4 17384
Old Private
Sector Banks
1613 44.7 269 7.4 475 13.2 869 24.1 - - 1999 55.3 3612
1 Bank of
Rajasthan Ltd.
61 20.9 7 2.5 42 14.4 12 4.1 - - 232 79.1 294
2 Catholic Syrian
bank Ltd.
62 41.7 7 4.6 32 21.4 23 15.7 - - 87 58.3 149
3 City Union
Bank Ltd.
41 44.2 16 17.1 9 9.7 16 17.3 - - 52 55.8 94
4 Dhana-Lakshmi
Bank Ltd.
35 45.6 4 5.3 6 7.3 26 33.0 - - 42 54.4 78
5 Federal Bank
Ltd.
440 53.6 65 8.0 18 2.2 356 43.4 - - 381 46.4 821
6 ING Vysya
Bank Ltd.
65 29.2 36 16.1 23 10.3 6 2.8 - - 159 70.8 224
7 J&K Bank Ltd. 286 61.8 32 7.0 54 11.7 199 43.2 - - 176 38.2 462
8 Karnataka
Bank Ltd.
324 59.0 51 9.2 172 31.2 102 18.6 - - 225 41.0 550
9 Karur Vysya
Bank Ltd.
68 29.0 7 2.9 53 22.7 8 3.4 - - 167 71.0 235
10 Lakshmi Vilas
Bank Ltd.
58 17.8 10 3.1 15 4.5 33 10.1 - - 267 82.2 325
11 Nainital Bank
Ltd.
17 73.4 8 34.9 2 9.2 7 29.4 - - 6 26.6 23
12 Ratnakar Bank
Ltd.
18 65.0 2 8.6 10 35.6 6 20.8 - - 10 35.0 28
13 SBI
Commercial
and
International
Bank Ltd.
2 62.4 - - - - 2 62.4 - - 1 37.6 3
14 South Indian
Bank Ltd.
88 41.7 12 5.7 27 12.9 49 23.0 - 123 58.3 211
15 Tamilnad
Mercantile Bank
Ltd.
46 40.2 10 9.0 12 10.6 24 20.6 - - 69 59.8 115
New Private
Sector Banks
3179 23.1 1754 12.7 664 4.8 760 5.5 - - 10594 76.9 13772
16 Axis Bank Ltd. 528 40.8 248 19.1 140 10.8 141 10.9 - - 767 59.2 1295
17 Development
Credit Bank
Ltd.
68 21.2 14 4.3 52 16.2 3 0.8 - - 251 78.8 319
18 HDFC Bank
Ltd.
400 22.1 110 6.1 276 15.3 14 0.8 - - 1407 77.9 1807
19 ICICI Bank
Ltd.
1946 21.0 1303 14.1 50 0.5 593 6.4 - - 7321 79.0 9267
20 Indusland Bank
Ltd.
84 33.0 31 12.0 46 18.1 8 3.0 - - 171 67.0 255
21 Kotak
Mahindra Bank
Ltd.
152 - 49 6.5 100 13.0 2 0.3 - - 616 80.2 767
22 Yes Bank Ltd. - - - - - - - - - 60 100.0 60
International Journal of Innovation, Management and Technology, Vol. 2, No. 3, June 2011
252
vide section 42 (6) (a) of the Act. As on 30th June, 1999,
there were 300 scheduled banks in India having a total
network of 64,918 branches. The scheduled commercial
banks in India comprise of State bank of India and its
associates (8), nationalized banks (19), foreign banks (45),
private sector banks (32), co-operative banks and regional
rural banks. Whereas Public sector Bank simply means a
banking entity which owned by Govt. of India any of state
govt’s. Thus all PSB's are scheduled (almost) but all
scheduled banks are not PSB's
VIII. NPA AND BANKS
Non-Performing Asset or NPA, It is called such as while
it is an "Asset", it does not bring substantial income to its
owner or is just dormant. Call it a white elephant if you
wish. Basically, it is having something that SHOULD work
but does not. It is supposed to make Non- Performing
Assets work. The RBI has issued guidelines to banks for
classification of assets into four categories.
A. Standard (Assets)
These are loans which do not have any problem are less
risk.
B .Substandard (Assets)
These are assets which come under the category of NPA
for a period of less than 12 months.
C.Doubtful (Assets)
These are NPA exceeding 12 months.
D. Loss (Assets)
Where loss has been identified by the bank or internal or
external auditors or the RBI inspection but the amount has
not been written off wholly.
IX. PROVISIONAL NORMS
Asset
Classification
Provision requirements
Standard assets (a) direct advances to agricultural & SME sectors at
0.25 per cent;
(b) residential housing loans beyond Rs. 20 lakh at 1
per cent;
(c) advances to specific sectors, i.e., personal loans
(including credit card
receivables), loans and advances qualifying as
Capital Market exposures,
Commercial Real Estate loans etc. at 2 per cent
(d) all other advances not included in (a), (b) and (c)
above, at 0.40 percent
Substandard
assets
10 per cent of the total out standings for substandard
assets.
Doubtful assets 20% - 50% of the secured portion depending on the
age of NPA, and 100% of the unsecured portion.
Loss assets It may be either written off or fully provided by the
bank. The entire asset should be written off.
The classification of assets of scheduled commercial bank.
A debt obligation where the borrower has not paid any
previously agreed upon interest and principal repayments to
the designated lender for an extended period of time. The
non performing asset is therefore not yielding any income to
the lender in the form of principal and interest payments. A
company's total sales revenue minus its cost of goods sold,
divided by the total sales revenue, expressed as a percentage.
The gross margin represents the percent of total sales
revenue that the company retains after incurring the direct
costs associated with producing the goods and services sold
by a company. The higher the percentage, the more the
company retains on each dollar of sales to service its other
costs and obligations. Loans and advances given by banks to
its customers is a asset to the bank. But, when repayment of
interest and Principal is overdue, such asset is classified as
NPA in the financial reports of banks. NPA is nothing but
NON PERFORMANCE ASSETS. Simply it’s a Bad Debt
to Bank.
TABLE: 3: ASSETS CLASSIFICATION OF PUBLIC SECTOR AND PRIVATE SECTOR BANKS
Bank group Year Standard assets Sub-standard
assets
Doubtful assets Loss assets
Amt %age Amt %age Amt %age Amt %age
1 2 3 4 5 6 7 8 9 10
1. Public sector banks
1.1 Nationalized banks
1.2 SBI Group
2009
2010
2009
2010
2009
2010
22,37,556
26,73,534
15,08,798
18,27,061
7,28,758
8,46,473
97.99
97.81
98.25
98.05
97.44
97.30
20,603
28,791
11,086
18,520
9,517
10,271
0.90
1.05
0.72
0.99
1.27
1.18
21,019
25,383
13,306
15,034
7,713
10,349
0.92
0.93
0.87
0.81
1.03
1.19
4,296
5,750
2,412
2,841
1,884
2,909
0.19
0.21
0.16
0.15
0.25
0.33
2. Private sector banks
2.1 Old private sector banks
2.2 New private sector banks
2009
2010
2009
2010
2009
2010
5,68,093
6,26,472
1,27,280
1,52,745
4,40,813
4,73,727
97.10
97.27
97.64
97.69
96.94
97.13
10,592
8,842
1,334
1,395
9,258
7,447
1.81
1.37
1.02
0.89
2.04
1.53
5,035
6,590
1,327
1,637
3,708
4,953
0.86
1.02
1.02
1.05
0.82
1.02
1,345
2,166
411
580
934
1,586
0.23
0.34
0.32
0.37
0.21
0.38
X. LIBERALISATION
In the early 1990s, the then Narsimha Rao government
embarked on a policy of Liberalization, licensing a small
number of private banks. These came to be known as New
Generation tech-savvy banks, and included Global Trust
Bank (the first of such new generation banks to be set up),
which later amalgamated with Oriental Bank of Commerce,
Axis Bank (earlier as UTI Bank), ICICI Bank and HDFC
Bank. This move, along with the rapid growth in the
International Journal of Innovation, Management and Technology, Vol. 2, No. 3, June 2011
253
economy of India, revitalized the banking sector in India,
which has seen rapid growth with strong contribution from
all the three sectors of banks, namely, government banks,
private banks and foreign banks.
The next stage for the Indian banking has been set up
with the proposed relaxation in the norms for Foreign Direct
Investment, where all Foreign Investors in banks may be
given voting rights which could exceed the present cap of
10%, at present it has gone up to 74% with some restrictions.
Currently (2007), banking in India is generally fairly mature
in terms of supply, product range and reach-even though
reach in rural India still remains a challenge for the private
sector and foreign banks. In terms of quality of assets and
capital adequacy, Indian banks are considered to have clean,
strong and transparent balance sheets relative to other banks
in comparable economies in its region. The Reserve Bank of
India is an autonomous body, with minimal pressure from
the government. The stated policy of the Bank on the Indian
Rupee is to manage volatility but without any fixed
exchange rate-and this has mostly been true.
TABLE: 4: PROMOTIONAL STRATEGIES BY PUBLIC AND PRIVATE SECTOR BANKS
Promotional Tool
Public Sector Bank Private Sector Bank
Advertising on T.V. Yes Yes
Advertising in Newspaper Yes Yes
Personal Selling/Personal Contact No Yes
In Journals and Magazines Yes Yes
Tele Calling by Sales Persons No Yes
Outdoor Advertising Hoardings etc Yes Yes
Schemes/Gifts/Prizes for Customers No Yes
Public Relations/ Events/Programmes Yes Yes
Online Marketing/ E-Mail Yes But Few Yes
Pamphlets/Propaganda No Yes
Letter/Mail/ with Relevant Material No Yes
Publishing News in Newspapers Yes But Few Yes
The new policy shook the Banking sector in India
completely. Bankers, till this time, were used to the 4-6-4
method (Borrow at 4%; Lend at 6%; Go. home at 4) of
functioning. The new wave ushered in a modern outlook
and tech-savvy methods of working for traditional banks.
All this led to the retail boom in India. People not just
demanded more from their banks but also received more
With the growth in the Indian economy expected to be
strong for quite some time-especially in its services sector-
the demand for banking services, especially retail banking,
mortgages and investment services are expected to be strong.
One may also expect M&As, takeovers, and asset sales. In
March 2006, the Reserve Bank of India allowed Warburg
Pincus to increase its stake in Kotak Mahindra Bank (a
private sector bank) to 10%. This is the first time an investor
has been allowed to hold more than 5% in a private sector
bank since the RBI announced norms in 2005 that any stake
exceeding 5% in the private sector banks would need to be
vetted by them. In recent years critics have charged that the
non-government owned banks are too aggressive in their
loan recovery efforts in connection with housing, vehicle
and personal loans. There are press reports that the banks'
loan recovery efforts have driven defaulting borrowers to
suicide.
XI. CLASSIFICATION OF BANKS
1) Nationalized Banks major stake is with GOI like SBI.
2) Private sector Banks major stake is with share holder
like ICICI.
3) Cooperative sector Banks are generally owned by trust
kind of setup like national cooperative bank.
4) RRB regional rural bank for the development of
banking in rural area generally owned by big nationalized
bank like Corp Gramin Bank
5) MNC Banks having offices outside India like CITI
Bank
XII. SUGGESTIONS
Based on the study conducted, there are some of the
suggestions given by the customers of how the modern
banking should be. These are the comment given by them
about the improvement of the banking sector in India.
1) Banks should obey the RBI norms and provide
facilities as per the norms, which are not being followed by
the banks. While the customer must be given prompt
services and the bank officer should not have any fear on
mind to provide the facilities as per RBI norms to the units
going sick.
2) Banks should increase the rate of saving account
3) Banks should provide loan at the lower interest rate
and education loans should be given with ease without
much documentation. All the banks must provide loans
against shares.
4) Fair dealing with the customers. More contribution
from the employee of the bank. The staff should be co-
operative, friendly and must be capable of understanding the
problems of customers
5) Internet banking facility must be made available in all
the banks.
6) Prompt dealing with permanent customers and speedy
transaction without harassing the customers
7) Each section of every bank should be computerized
even in rural areas also.
8) Real time gross settlement can play a very important
International Journal of Innovation, Management and Technology, Vol. 2, No. 3, June 2011
254
role.
9) More ATM coverage should be provided for the
convenience of the customers.
10) No limit on cash withdrawals on ATM cards.
11) The bank should bring out new schemes at time-to-
time so that more people can be attracted. Even some gifts
and prizes may be offered to the customers for their
retention.
12) 24 hours banking should be induced so as to facilitate
the customers who may not have a free time in the daytime.
It will help in facing the competition more effectively.
13) The charges for saving account opening are high, so
they should also be reduced.
14) Customers generally complain that full knowledge is
not granted to them. Thus the bank should properly disclose
the features of the product and services to the customers.
Moreover door to door services can also be introduced by
bank.
15) The need of the customer should properly be
understood so that customer feels satisfied. The relationship
value should be maintained.
16) The branch should promote cooperation and
coordination among employees which help them in efficient
working.
17) Maintenance of proper hierarchy should be done. A
good hierarchy set up can ensure better results within the
bank.
Banking sector is improving by leaps but still it needs to
be improved. Proper and efficient relationship staffs having
knowledge for one stop banking, customer friendly
atmosphere, and better rate of interest are need of the hour.
the concept of privatization has overall improved the
services in all the banks. Home banking will be order of the
day.
XIII. RECOMMENDATIONS FOR REDUCING
NPAS
1) Effective and regular follow-up of the end use of the
funds sanctioned is required to ascertain any
embezzlement or diversion of funds. This process can be
undertaken every quarter so that any account converting
to NPA can be properly accounted for.
2) Combining traditional wisdom with modern statistical
tools like Value-at-risk analysis and Markov Chain
Analysis should be employed to assess the borrowers.
This is to be supplemented by information sharing
among the bankers about the credit history of the
borrower. In case of new borrowers, especially corporate
borrowers, proper analysis of the cash flow statement of
last five years is to be done carefully.
3) A healthy Banker-Borrower relationship should be
developed. Many instances have been reported about
forceful recovery by the banks, which is against
corporate ethics. Debt recovery will be much easier in a
congenial environment.
4) Assisting the borrowers in developing his
entrepreneurial skills will not only establish a good
relation between the borrowers but also help the bankers
to keep a track of their funds.
5) Countries such as Korea, China, Japan, Taiwan have a
well functioning Asset reconstruction/Recovery
mechanism wherein the bad assets are sold to an Asset
Reconstruction Company (ARC) at an agreed upon price.
In India, there is an absence of such mechanism and
whatever exists, it is still in nascent stage. One problem
that can be accorded is the pricing of such loans.
Therefore, there is a need to develop a common
prescription for pricing of distressed assets so that they
can be easily and quickly disposed. The ARCs should
have clear ‘financial acquisition policy’ and guidelines
relating to proper diligence and valuation of NPA
portfolio.
6) Some tax incentives like capital gain tax exemption,
carry forward the losses to set off the same with other
income of the Qualified Institutional Borrowers (QIBs)
should be granted so as to ensure their active
participation by way of investing sizeable amount in
distressed assets of banks and financial institutions.
7) So far the Public Sector Banks have done well as far as
lending to the priority sector is concerned. However, it is
not enough to make lending to this sector mandatory; it
must be made profitable by sharply reducing the
transaction costs. This entails faster embracing of
technology and minimizing documentation.
8) Commercial Banks should be allowed to come up with
their own measures to address the problem of NPAs.
This may include waiving and reducing the principal and
interest on such loans, or extending the loans, or settling
the loan accounts. They should be fully authorized and
they should be able to apply all the preferential policies
granted to the asset management companies.
9) Another way to manage the NPAs by the banks is
Compromise Settlement Schemes or One Time
Settlement Schemes. However, under such schemes the
banks keep the actual amount recovered secret. Under
these circumstances, it is necessary to bring more
transparency in such deals so that any flaw could be
removed.
XIV. CONCLUSION
It is right time to take suitable and stringent measures to
get rid of NPA problem. An efficient management
information system should be developed. The bank staff
involved in sanctioning the advances should be trained
about the proper documentation and charge of securities and
motivated to take measures in preventing advances turning
into NPA. Public banks must pay attention on their
functioning to compete private banks. Banks should be well
versed in proper selection of borrower/project and in
analyzing the financial statement
REFERENCES
[1] A.V. Aruna Kumari (2002), “Economic Reforms and Performance of
Indian Banking: A Cross Structural Analysis”, Indian Economic
Panorama, A Quarterly Journal of Agriculture, Industry, Trade and
Commerce, Special Banking Issue, pp.19-21.
[2] A.K. Trivedi (2002), “Economic Reforms and Banking Scenario: An
Analysis”, Indian Economic Panorama, A Quarterly Journal of
Agriculture, Industry, Trade and Commerce, Special Banking Issue,
pp.6-8
[3] Chandrasekhar, C.P. 2009. How sound is Indian banking. The
Economic & Political Weekly. May, pp. 8
International Journal of Innovation, Management and Technology, Vol. 2, No. 3, June 2011
255
[4] Dr. Vibha Jain: Non-Performing Assets in commercial Banks:
Regal Publication, New Delhi,1
st
Edition 2007p p78-79
[5] Hallinan, Joseph T. (2003), “Bigger Banks. Better Deals?”, Wall
Street Journal - Eastern Edition, Vol. 242, Issue 84, pp.D1-D3
[6] Reserve Bank of India, master circular on prudential norms on
income recognition. Asset classification and provisioning.
[7] Subramanium, K. 1997. Banking Reformsinindia. TMH Publishing
Co. Ltd., New Delhi.
[8] Sagar R. Dave, performance evaluation in Indian banking.
[9] WELLS Fargo & Co. (2003), “Big Banks Report Strong Gains, Led
by Wells Fargo, Bank One”, Wall Street Journal - Eastern Edition,
Vol. 242, Issue 80, p.C5
[10] Question 366, Written Answers to Questions, Parliamentary sessions,
09.08.91, [36] Rime, Bertrand and Stiroh, Kevin J. (2003), “The
Performance of Universal Banks: Evidence from Switzerland”,
Journal of Banking & Finance; Vol. 27, Issue 11, pp.2121-51.
Monika Sharma, photograph and biography not available at the
timeofpublishing.
Kajal Chaudhary, photograph and biography not available at the time
ofpublishing.
International Journal of Innovation, Management and Technology, Vol. 2, No. 3, June 2011
256
doc_379858627.pdf