SUMMER INTERNSHIP 2013 MINISTRY OF FINANCE

DEPARTMENT OF FINANCIAL SERVICE

RECOVERY SECTION

TOPIC MINIMISING FRESH SLIPPAGE AND MAXIMISING RECOVERY

ANALYSIS OF NPA: A COMPARATIVE STUDY BETWEEN PSB & SCB

UNDER THE GUIDANCES OF

MR. ANURAG JAIN JOINT SECRETARY (IF) MR. MIHIR KUMAR DIRECTOR (RECOVERY)

SUBMITTED BYDIVISHA GOYAL M.A ECONOMICS DELHI SCHOOL OF ECONOMICS UNIVERSITY OF DELHI

ACKNOWLEDGEMNT
I would like to express my special thanks of gratitude to the DIRECTOR (Recovery) Mr. MIHIR KUMAR, JOINT SECRETERIAT(IF) Mr. ANURAG JAIN who gave me the golden opportunity to project on the topic MINIMISING FRESH SLIPPAGE AND MAXIMISING RECOVERY and guided me greatly in successful completion of the project. During the course of this project I developed huge research insight and knowledge. Secondly, I would like to thank Mr. ADITYA S. SINGH and Mr. N.K MALIK who helped me collect the entire database from RBI and MOF. Thirdly, I would like to thank Mr. MAHENDER SINGH, Mr. V.K SINGH (officers of other section), who helped me greatly during the course of the project in developing a structure to my project and all other people who were involved in enhancing my knowledge base.

VISION "Appropriate and timely measures have to be taken by the bankers in such away NPA rates can be brought down, and should visions to make NPA one percent by 2014 to make a prospective economic situation". ABSTRACT At the micro level, NPAs affects liquidity, profitability and performance of banks. While at the macro level, NPAs affect stability of banking and leads to financial shocks in economy. The research evaluates policy measures that can be taken in order to reduce growth rate in NPA and overall NPA ratio based on the study of past and present trend (1997-2013 period) and existing measures effectiveness in reducing NPA. Study on empirical data has evaluated that whether there is significant impact of macroeconomic variables like GDP, foreign currency assets, inflation, and rate of interest on the NPA reduction. Analysis has also been made to check if there is a significant impact of growth rate in gross advances on gross NPA, gross NPA ratio etc. The significance of impact of various sectors gross advances on gross NPA, impact of NPA reduction on PSBs, SCBs net profits is analyzed. Also, the significance of impact of various recovery efforts (compromise settlement/write off, LOK ADALATS, DRT, SARFAESI Act, up-gradation) on NPA reduction, actual recovery and profitability of banks has been analyzed for both PSBs and SCBs.

S. No. l) ll) lll) Analysis 1 A) B) C) Analysis 2 A) B) C) D) Analysis 3 A) B) C) D) Analysis 4: A) B) C) D) E) F) Analysis 5 A) B) C) Analysis 6 A) B) C) D) E)

TABLE OF CONTENTS
INTRODUCTION RESEARCH OBJECTIVES AND METHODOLOGY ANALYSIS Impact of macroeconomic indicators on NPA reduction Impact of GDP at market price (constant prices) on NPA reduction (2001-2012) Impact of foreign currency assets on NPA reduction (2001-2012) Impact of WPI on NPA reduction (2001-2009) Impact of rate of interest on NPA reduction (2001-2012) Trend of asset classification, gross advances, gross NPA, gross NPA ratio Trend in NPA asset classification over the years (PSB, SCB)(1997-2013) Trend in Gross advances of priority and non priority sector (PSB, SCB)(1997-2013) Trend in Gross NPA of priority and non priority sector (PSB, SCB)(1997-2013) Trend in NPA ratio of priority and non priority sector rate (PSB, SCB)(1997-2013) Trend, correlation, regression analysis of gross NPA, gross advances, gross NPA ratio Trend in growth rate of NPA ratio, Gross NPA and Gross advances (PSB, SCB)(1998-2013) Analysis of impact of growth rate in gross advances on growth rate in gross NPA ratio (PSB,SCB)(1998-2013) Analysis of impact of growth rate in gross NPA on growth rate in gross NPA ratio (PSB,SCB)(19982013) Analysis of impact of growth rate in gross advance on growth rate in gross NPA (PSB, SCB) (19982013) Trends, descriptive analysis of all the sectors gross NPA Trend analysis of ratio of gross NPA of sectors component of PS to gross NPA of PS (PSB,SCB) (1997-2013) Descriptive analysis of ratio of gross NPA of sectors component of PS to gross NPA ( PSB) (19972013) Descriptive analysis of ratio of gross NPA of sectors component of PS to gross NPA of PS (SCB)(1997-2013) Trend analysis of ratio of gross NPA of PS, NPS to total sector gross NPA (PSB, SCB)(1997-2013) Analysis of factors leading to growth rate in gross NPA ratio (PSB) (1998-2013) Analysis of factors leading to growth rate in gross NPA ratio (SCB) (1998-2013) Trend, correlation, regression analysis of growth rate of NPA ratio, growth rate in banks net profits, gross NPA ratio, net bank profits, NPA reduction . Trend, correlation, regression analysis of growth rate in NPA ratio and growth rate in bank profitability (PSB, SCB)( Year 1997-2013) Trend, correlation, regression analysis of NPA ratio and bank net profits (PSB, SCB)( Year 19972013) Trend, correlation, regression analysis of NPA reduction and banks net profits (PSB, SCB)( Year 1997-2013) Trend, correlation , regression analysis among gross advances and gross NPA of all the sectors Trend, correlation, regression analysis of gross advances on gross NPA (agriculture)(1997-2013) Trend, correlation, regression analysis of gross advances on gross NPA (SME)(1997-2013) Trend, correlation, regression analysis of gross advances on gross NPA (other prioritysector)(OPS)(1997-2013) Trend, correlation, regression analysis of gross advances on gross NPA (total priority sector, TPS)(1997-2013) Trend, correlation, regression analysis of gross advances on gross NPA (Non priority sector)(1997-

PAGE NO 7 10 11-51 11-14 11 12 13 14 15-17 15 16 17 17 18-20 18 18 19 20 21-25 21 21 22 23 24 25 26-28 26 27 28 29-34 29 30 31 32 33 4

Analysis 7 A) A.1) A.2) B) B.1) B.2) B.3) C) C.1) C.2) C.3) D) D.1) D.2) D.3) E) Analysis 8 A) B) C) Analysis 9 A) B) C) Analysis 10 A) A1) A2) B) C) C.1) C.2) C.3) C.4) lV)

2013) Trend, correlation, descriptive, regression analysis of reduction in NPA and its components (comparative analysis of PSBs, SCBs) Reduction in NPA Reduction in NPA (actual recovery +recovery due to up-gradation +recovery due to compromise settlement)(PSB, SCB)(2001-2012) Correlation analysis of NPA reduction with its components (2001-2012) Actual recovery Trend analysis of actual recovery (PSB, SCB) (2001-2012) Correlation analysis of actual recovery between PSBs, SCBs Trend analysis of actual recovery (PSB to SCB ratio)(2002-2013) Reduction in NPA due to up- gradation Trend analysis of Reduction in NPA due to up- gradation (2001-2012) Correlation analysis of reduction in NPA due to up-gradation between PSBs, SCBs Trend analysis of up-gradation ratio for the period (2001-2012) Reductions in NPA due to compromise write-off (2001-2012) Trend analysis of recovery due to compromise/write off (PSB,SCB) for the period 2001-2012) Correlation analysis of reduction in NPA due to compromise/settlement write off between PSBs, SCBs Trend analysis of compromise write off ratio for the period between 2001-2012 Impact of actual recovery, recovery due to up-gradation, recovery due to compromise settlement on NPA reduction for both PSBs, SCBs (2001-2012) Trend, correlation, regression analysis of recovery due to up-gradation, compromise settlement & actual recovery on banks net profits. Trend, correlation, regression analysis of recovery due to up-gradation on bank net profits (20012012) Trend, correlation, regression analysis of recovery due to up-gradation on bank net profits (20012012) Trend, correlation, regression analysis of recovery due to compromise settlement on bank net profits (2001-2012) Trend, correlation of restructuring of assets, regression analysis of Growth rate of restructuring (RSADV ratio) and growth rate of bank profits Trend analysis of restructuring assets, restructuring ratio(PSBs, SCBs) (2002-2013) Correlation analysis of restructuring of assets (2002-2013) Trend of Growth rate of restructuring (RSADV ratio) and growth rate of bank profits (2002-2013) Trend, correlation, regression analysis of recovery measures undertaken (LOK ADALAT, DRT, SARFAESI Act) and (NPA reduction, actual (cash) recovery) Trend analysis of recovery measures undertaken, NPA reduction, actual recovery (2004-2012) Trend analysis of recovery due to SARFAESI Act, LOK ADALATS in PSBs. Trend analysis of recovery due to DRT, LOK ADALAT in SCBs. Correlation analysis of recovery measures undertaken with NPA reduction and actual recovery (2004-2012) Regression analysis of recovery measures undertaken with NPA reduction and actual recovery Impact of recovery due to SARFAESI Act on NPA reduction and actual recovery.(2004-2012)(PSB) Impact of recovery due to LOK ADALAT on NPA reduction and actual recovery.(2006-2012)(PSB) Impact of recovery due to DRT on NPA reduction and actual recovery (2004-2012) (SCB) Impact of recovery due to LOK ADALAT on NPA reduction and actual recovery.(2004-2012)(SCB) Conclusions from above generated results

35-41 35 35 35 36 36 36 36 37-38 37 37 38 38-39 38 39 39 40 42-44 42 43 44 45-47 45 46 47 48-52 48-49 48 49 50 50-52 50 51 51 52 53-54 5

V) A) A.1) A.2) A.3) B) VI) VII)

OTHER MEASURES TO REDUCE NPA Altmans Z score Can banks use Altmans Z score to detect financial position of companies in addition to credit rating to judge their financial position in deciding whom to lend whom not to lend? Brief on Altmans Z score Application of Z score in Indian context Credit rating RECOMMENDATIONS APPENDIX (TABLES)

55-56 55-56 55 55 56 56 57 58-66

l) INTRODUCTION
Management of NPA is need of the hour. To be effective, NPA management has to be an exercise pervading the entire bank from the Board down the last level. Time is of prime essence in NPA management. The course open to the banker is to ensure that an asset does not become NPA. If it does, the steps should be taken for early recovery failing which the profitability of the bank will be eroded. That can trigger other problems to undermine the banks financial condition. Therefore, NPA is an important factor, which affects the performance of the banks. So it is very important to check it, from time to time and try to minimize it in order to get increasing returns. Reasons of NPA At a macro level, the reasons for increase in NPAs of banks, inter-alia, are switch over to System Based Identification of NPAs, current macro-economic situation in the country, increased interest rates in the recent past, lower economic growth ,crop failure etc. While at a micro level, the unsuccessful operation of production, longer time period taken in realizing income flow out of production or delays in commencement of their project calamities aggressive lending by banks in the past, especially during good times., fraud activities such as wrong information by the borrower about their business credit worthiness or wrong proof of documents of assets they mortgages, against the loan amount taken etc. can lead to slippage of assets into NPA, delay in loan disbursement can throw a project off track, and have a cascading effect on its viability and capacity to repay, the inability to banks to judge credit worthiness of industrialist or under predicting wrong gestation period can also affect bor rowers ability to repay interest/ principal amount in time. Problems due to NPA Nonperforming loans epitomize bad investment. They misallocate credit from good projects, which do not receive funding to failed projects. Bad investment ends up in misallocation of capital and by extension, labor and natural resources. Bank redistributes losses to other borrowers by charging higher interest rates, lower deposit rates and higher lending rates repress saving and financial market, which hamper economic growth. Since provisioning has to be made if assets turn into NPA, this further reduces the profitability of the banks and thus their credit creation capacity to a large extend. Strategies for overcoming NPAs Various steps have been taken by the government and RBI to recover and reduce NPAs. The strategies necessary to control NPAs are discussed below. There are two broad categories of management to prevent NPA. A) Preventive management and B). Curative management A. Preventive Management: Preventive measures are to prevent the asset from becoming a non performing asset. Banks has to concentrate on the following to minimize the level of NPAs. 1. Early Warning Signals The origin of the flourishing NPAs lies in the quality of managing credit assessment, risk management by the banks concerned. Banks should have adequate preventive measures, fixing pre sanctioning appraisal responsibility and having an effective post-disbursement supervision. Banks should continuously monitor loans to identify accounts that have potential to become non-performing. It is important in any early warning system, to be sensitive to signals of credit deterioration. A host of early warning signals are used by different banks for identification of potential NPAs. The indicators which may trigger early warning system depend not only on default in payment of installment and interest but also other factors such as deterioration in operating and financial performance of the borrower, weakening industry characteristics, regulatory changes, and general economic conditions. Early warning signals can be classified into five broad categories viz. (a) Financial (b) Operational (c) Banking (d) Management and (e) External factors. Financial related warning signals generally emanate from the borrowers balance sheet, income expenditure statement, statement of cash flows, statement of receivables etc

2. Financial warning signals Such signals are related to financial position of the borrowers. For example Persistent irregularity in the account Default in repayment obligation, devolvement of LC/invocation of guarantees, deterioration in liquidity/working capital position, substantial increase in long term debts in relation to equity, declining sales, operating losses/net losses, rising sales and falling profits, disproportionate increase in overheads relative to sales, rising level of bad debt losses, operational warning signals, low activity level in plan, disorderly diversification/frequent changes in plan, non -payment of wages/power bills, loss of critical customer/s, frequent labor problems, evidence of aged inventory/large level of inventory 3. Management related warning signals Such signals are related to management issues of the borrowers firm. For example Lack of co-operation from key personnel, change in management, ownership, or key personnel, desire to take undue risks, family disputes, poor financial controls, fudging of financial statements, diversion of funds. 4. Banking related signals Such signals are associated with banking position of the borrowers. For example Declining bank balances/ declining operations in the account, opening of account with other bank, return of outward bills/ dishonored cheques, sales transactions not routed through the account, frequent requests for loan, frequent delays in submitting stock statements, financial data, etc. Signals relating to external factors include economic recession, emergence of new competition, emergence of new technology, changes in government / regulatory policies, natural calamities. 5. Watch-list/Special Mention Category The grading of the banks risk assets is an important internal control tool. It serves the need of the Management to identify and monitor potential risks of a loan asset. The purpose of identification of potential NPAs is to ensure that appropriate preventive / corrective steps could be initiated by the bank to protect against the loan asset becoming non-performing. Most of the banks have a system to put certain borrowable accounts under watch list or special mention category if performing advances operating under adverse business or economic conditions are exhibiting certain distress signals. These accounts generally exhibit weaknesses which are correctable but warrant banks closer attention. The categorization of such accounts in watch list or special mention category provides early warning signals enabling Relationship Manager or Credit Officer to anticipate credit deterioration and take necessary preventive steps to avoid their slippage into non performing advances 6. Willful Defaulters RBI has issued revised guidelines in respect of detection of willful default and diversion and siphoning of funds. As per these guidelines a willful default occurs when a borrower defaults in meeting its obligations to the lender when it has capacity to honor the obligations or when funds have been utilized for purposes other than those for which finance was granted. The list of willful defaulters is required to be submitted to SEBI and RBI to prevent their access to capital markets. Sharing of information of this nature helps banks in their due diligence exercise and helps in avoiding financing unscrupulous elements. RBI has advised lenders to initiate legal measures including criminal actions, wherever required, and undertake a proactive approach in change in management, where appropriate. B. Curative Management The curative measures are designed to maximize recoveries so that banks funds locked up in NPAs are released for recycling. The Central government and RBI have taken steps for controlling incidence of fresh NPAs and creating legal and regulatory environment to facilitate the recovery of existing NPAs of banks. Some of them have been discussed below: 1. One Time Settlement Schemes: This scheme covers all sectors sub standard assets, doubtful or loss assets. All cases on which the banks have initiated action under the SARFAESI Act and also cases pending before Courts/ DRTs/ BIFR, subject to consent decree being obtained from the Courts/DRTs/BIFR are covered. However cases of willful default, fraud and malfeasance are not covered. As per the OTS scheme, for NPAs up to Rs. 10 crores, the minimum amount that should be recovered should be 100% of the outstanding balance in the account. 2. LokAdalats: Lok Adalat institutions help banks to settle disputes involving account in doubtful and loss category, with outstanding balance of Rs. 5 lakhs for compromise settlement under Lok Adalat. Debt recovery tribunals have been empowered to organize Lok Adalat to decide on cases of NPAs of Rs. 10 lakh and above.

3. Debt Recovery Tribunals (DRTs): The Debt Recovery Tribunals have been established by the Government of India under an Act of Parliament (Act 51 of1993) for expeditious adjudication and recovery of debts due to banks and financial institutions. The Debt Recovery Tribunal is also the appellate authority for appeals file against the proceedings initiated by secured creditors under the SARFAESI Act. The recovery of debts due to banks and financial institution passed in March 2000 has helped in strengthening the function of DRTs. Provision for placement of more than one recovery officer, power to attach defendants property/assets before judgement, penal provision for disobedience of tribunals order or for breach of any terms of order and appointment of receiver with power of realization, management, protection and preservation of property are expected to provide necessary teeth to the DRTs and speed up the recovery of NPAs in the times to come. 4. Securitization and SARFAESI Act Securitization is considered an effective tool for improvement of capital adequacy. It is also seen as a tool for transferring the reinvestment risk, apart from credit risk helping the banks to maintain proper match between assets and liabilities. Securitization can also help in reducing the risk arising out of credit exposure norms and the imbalances of credit exposure, which can help in the maintenance of healthy assets. The SARFAESI Act intends to promote Securitization, pool together NPAs of banks to realize them and make enforcement of Security Interest Transfer. The SARFAESI Act-2002 is seen as a booster, initially, for banks in tackling the menace of NPAs without having to approach the courts.

RECENT INITIATIVES (taken by Government of India and RBI) 1) To put in place an effective mechanism for information sharing for sanction of fresh loans/ad-hoc loans/renewal of loans to new or existing borrowers. 2) To constitute a Board level Committee for monitoring of recovery. 3) To review NPA accounts of Rs. 1 crore and above by Board of Directors and top 300 NPA accounts by Management Committee of the Board. 4) Appointment of a Nodal Officer for recovery at the Head Office/Zonal Office/for each DRT. 5) Thrust on recoveries of loss Assets. 6) Write-off should not be more than recovery. 7) Designating of ARCs as Authorized Officer. 8) Guidelines issued for effective NPA Management as part of early warning system. 9) Thrust on organizing LOK ADALATS/Recovery Camps. 10) Given the larger objectives of financial stability, and keeping in view international best practices to ensure that banks have sufficient provisioning buffer, RBI has announced, in its second review of Monetary Policy, to raise the provision for restructured standard accounts from the existing 2 per cent to 2.75 per cent. 11) To address the issue of rise in NPAs and restructured advances of banks, and with a view to improving effective information sharing among banks on credit, derivatives and unhedged foreign currency exposures, banks are advised to put in place, by end-December 2012, an effective mechanism for information sharing. Any sanction of fresh loans/ad-hoc loans/renewal of loans to new or existing borrowers with effect from January 1, 2013 should be made only after obtaining/sharing necessary information. Banks have been advised that non adherence to these instructions would be viewed seriously by RBI and banks would be liable to action including imposition of penalty wherever considered appropriate.

ll) RESEARCH OBJECTIVES AND METHODOLOGY

Objectives 1) To analysis the significance of impact of various macroeconomics indicators (GDP, foreign currency assets, inflation, rate of interest) on NPA reduction. 2) To analysis the trend performance of various NPA variables (NPA asset classification, priority, non priority sector gross NPA ratio, gross NPA) & advances. 3) To analysis the significance of impact of growth rate of gross advances on growth rate of gross NPA ratio & on growth rate in gross NPA. Also the impact of growth rate in gross NPA on growth rate in gross NPA ratio. 4) To make analysis of ratio of gross NPA of sectors component of PS to gross NPA, analysis of ratio of gross NPA of PS, NPS to total sector gross NPA & the factors leading to growth rate in gross NPA ratio. 5) To make correlation, regression analysis of growth rate in NPA ratio and growth rate in bank profitability, analysis of NPA ratio and bank net profits & of NPA reduction and banks net profits. 6) To make correlation and regression analysis of gross advances and gross NPA of all the sectors. 7) To make correlation, descriptive, regression analysis of reduction in NPA and its components. 8) To make regression analysis of impact of actual recovery, recovery due to up-gradation, recovery due to compromise settlement on NPA reduction & banks net profits. 9) To make analysis of restructuring assets, restructuring ratio. 10) To make correlation, regression analysis of recovery measures undertaken (LOK ADALAT, DRT, SARFAESI Act) and (NPA reduction, actual (cash) recovery).

Data and Methodology The major variables used for the present study are NPA ratio, Gross advances, gross NPA, net profits of banks, macro-economic indicators, recovery efforts in NPA reduction of public sector banks and scheduled commercial banks. For the purpose, data from 1997 to 2013 on annual basis have been collected from ministry of finance and RBI, while for some of the variables, analysis has been made from period 2001 onwards. The longer duration period is chosen to have sufficient variability in the independent variables to have an efficient estimated results th derived from the regression analysis. All the years represents financial year as on 30 march. However for simplification purpose, the date has not been specified along with the year. This study is based on secondary data analysis of the banks and all the figures of the variables taken for the analysis purpose are in crore units, except for foreign currency assets and GDP which are in billions. The entire following results have been generated using STATA software.

10

lll) ANALYSIS Analysis 1: Impact of macroeconomic indicators on NPA reduction A) Impact of GDP at market price (constant prices) on NPA reduction (2001-2012) PSB SCB

NPA reduction_PSB( fig in crore) GDP(market price)( figures in rs bn) NPA reduction_SCB(fig in crore) Correlation analysis Correlation analysis correlation NPA reduction correlation NPA reduction GDP 0.9218 GDP 0.9701 There is a very strong and positive correlation of GDP at There is a very strong and positive correlation of GDP at market price and NPA reduction in PSBs. market price and NPA reduction in SCBs. Regression study Null hypothesis(Ho):no impact of GDP on NPA reduction. NPA reduction=-11886.36 cr +.0097 GDP
The coefficient value has been corrected for the change in scaling. GDP figures are in rupee billions and NPA reduction figures in crores

Regression study Null hypothesis(Ho):no impact of GDP on NPA reduction. NPA reduction=-18808.65 cr + 0.0137 GDP
The coefficient value has been corrected for the change in scaling. GDP figures are in rupee billions and NPA reduction figures in crores

If GDP increases by 1 unit (billion), it leads to .97 crore rise in NPA reduction figure. R-squared=0.8497 Adj R-squared =0.8347
R squared depicts the percentage explanation of dependent variable due to independent variable.

If GDP increases by 1 unit (billion), it leads to 1.37 cr rise in NPA reduction figure. R-squared=0.8941 Adj R-squared =0.8835
R squared depicts the percentage explanation of dependent variable due to independent variable.

NPA reduction GDP

ANNOVA REGRESSION ANALYSIS coefficient T value P>|t| 0.0097 7.54 0.00

NPA reduction GDP

ANNOVA REGRESSION ANALYSIS coefficient T value P>|t| 0.0137 9.19 0.000

T values and correlation coefficient values are not affected by different scaling.

T values and correlation coefficient values are not affected by different scaling.

At the 5% level of significance the critical t value=2.20(11 degrees of freedom, n=12) is much less than the observed t value=7.54 implying that there is a significant impact of GDP on NPA reduction and the null is rejected.

At the 5% level of significance the critical t value=2.20(11 degrees of freedom, n=12) is much less than the observed t value=9.19 implying that there is a significant impact of GDP on NPA reduction and the null is rejected.

Footnote: GDP at constant prices is taken to negate the impact of inflation on NPA reduction figures. Source: RBI, MOF Reference: appendix, table no 1

11

B) Impact of foreign currency assets on NPA reduction (2001-2012) PSB SCB NPA reduction_PSB, NPA reduction_SCB figures are in crores & foreign currency assets are in billion rupees.

Correlation analysis correlation NPA reduction foreign currency assets 0.7997 There is a very strong and positive correlation of foreign currency assets and NPA reduction in PSBs. Regression study Null hypothesis(Ho):no impact of foreign currency assets on NPA reduction. NPA reduction =9374cr+0.0204 foreign currency assets
The coefficient value has been corrected for the change in scaling. Foreign currency assets figures are in rupee billions and NPA reduction figures in crores.

Correlation analysis correlation NPA reduction foreign currency assets 0.8454 There is a very strong and positive correlation of foreign currency assets and NPA reduction in SCBs. Regression study Null hypothesis(Ho): no impact of foreign currency assets on NPA reduction. NPAreduction=10470 cr+0.0297 foreign currency assets
The coefficient value has been corrected for the change in scaling. Foreign currency assets figures are in rupee billions and NPA reduction figures in crores.

If foreign currency assets (F.C.A) rises by 1 unit (billion), it leads to 2.04 cr rise in NPA reduction figure of PSBs. R-squared=0.6395 Adj R-squared =0.6034 ANNOVA REGRESSION ANALYSIS coefficient T value P>|t| 0.0204 4.21 0.02

If foreign currency assets (F.C.A) rises by 1 unit (billion), it leads to 2.97 cr rise in NPA reduction figure of SCBs. R-squared=0.7146 Adj R-squared =0.6861 ANNOVA REGRESSION ANALYSIS coefficient T value P>|t| 0.0297 5.00 0.01

NPA reduction F.C.A

NPA reduction F.C.A

T values and correlation coefficient values are not affected by different scaling.

T values and correlation coefficient values are not affected by different scaling.

At the 5% level of significance the observed t value=4.21 is much higher than the critical t value=2.20(11 degrees of freedom, n=12) implying that there is a significant impact of foreign currency assets on NPA reduction and the null is rejected.

At the 5% level of significance the observed t value=5 is much higher than the critical t value=2.20(11 degrees of freedom, n=12) implying that there is a significant impact of foreign currency assets on NPA reduction and the null is rejected.

Source: RBI, MOF Reference: appendix, table no 1

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C) Impact of WPI on NPA reduction (2001-2009) PSB SCB

NPA reduction_PSB Correlation analysis correlation NPA reduction_PSB WPI 0.9084 There is a very strong positive correlation between WPI and NPA reduction in PSBs. Regression study Null hypothesis(Ho): no impact of WPI on NPA reduction NPA reduction_PSB = -6918.53 +139.29 WPI

WPI

NPA reduction_SCB

Correlation analysis correlation NPA reduction_SCB WPI 0.8690 There is a very strong positive correlation between WPI and NPA reduction in SCBs. Regression study Null hypothesis(Ho): no impact of WPI on NPA reduction. NPAreduction_SCB= -16672.42 + 220.35 WPI R-squared= 0.7552 Adj R-squared = 0.7202 ANNOVA REGRESSION ANALYSIS NPA coefficient Std. error. T P>|t| reduction value F.C.A 220.3506 47.42061 4.65 0.002
T values and correlation coefficient values are not affected by different scaling.

R-squared= 0.8251 Adj R-squared = 0.8001 ANNOVA REGRESSION ANALYSIS NPA coefficient Std. error T P>|t| reduction value F.C.A 139.2928 24.23821 5.75 0.001
T values and correlation coefficient values are not affected by different scaling.

The associated T value=5.75 is much higher than the observed critical value of 2.306(8 degrees of freedom, n=9), at 5% level of significance implying that there is a significant positive impact of WPI on NPA reduction.
Source: RBI, MOF Reference: appendix, table no 1

The associated T value=4.65 is much higher than the observed critical value of 2.306(8 degrees of freedom, n=9), at 5% level of significance implying that there is a significant positive impact of WPI on NPA reduction.

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D) Impact of rate of interest on NPA reduction (2001-2006)

Trend of reduction in NPA of PSB, SCB PSB Correlation analysis correlation NPA reduction Repo rate -0.9155 Regression study Null hypothesis(Ho): no impact of repo rate on NPA reduction NPA reduction = 40817.38-3112.28 repo rate 1 point fall in repo rate leads to 3112 unit rise in NPA reduction figures. R-squared=0.8381 Adj R squared =0.7976 ANNOVA REGRESSION ANALYSIS coefficient Std error T value

Trend of repo rate SCB Correlation analysis correlation NPA reduction Repo rate -0.9576 Regression study Null hypothesis(Ho): no impact of repo rate on NPA reduction. NPAreduction= 56397.06- 4582.5 repo rate 1 point fall in repo rate leads to 4582 unit rise in NPA reduction figures. R-squared=0.9169 Adj R squared=0.8962 ANNOVA REGRESSION ANALYSIS coefficient Std error T value

NPA reduction Repo rate

P>|t|

-3112.28

683.9785 -4.55

0.010

NPA reduction Repo rate

P>|t|

-4582.50

689.6464 -6.64

0.003

T values and correlation coefficient values are not affected by different scaling.

T values and correlation coefficient values are not affected by different scaling.

The associated T value=-4.55 is much lower than the observed critical value of -2.57(5 degrees of freedom, n=6), at 5% level of significance implying that there is a significant negative impact of rate of interest on NPA reduction figures.
Source: RBI, MOF Reference: appendix, table no 1

The associated T value=-6.64 is much lower than the observed critical value of -2.57(5 degrees of freedom, n=6), at 5% level of significance implying that there is a significant negative impact of rate of interest on NPA reduction figures.

Footnote: 1) the time period of analysis has been reduced to make the result consistent with our expectation. 2) Repo rate is chosen as a proxy for rate of interest charged by banks on loans as repo rate has a direct impact on interest charged by banks.

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Analysis 2: Trend of asset classification, gross advances, gross NPA, gross NPA ratio

A) Trend in NPA asset classification over the years (PSB, SCB)(1997-2013) PSB SCB

From the period 1997 to 2007, the trend in movement of sub standard, standard, loss asset has been same. After this period the rise in both sub standard and doubtful asset is remarkable and increasing at an increasing rate. The rate of growth in loss asset seems to be stagnant throughout the period.

The trend in movement of all the three asset classification of NPA is showing a similar sign. This is because PSB public sector banks comprise the largest share of SCBs of around 70% throughout the period.

Variable Sub standard doubtful

Summary of asset classification of NPA Mean Minimum Maximum 23053.87 30486.39 11084.45 (yr 2005) 79434.34 (yr 2013)

Standard deviation 18839.8 11916.4 794.192

Variable Sub standard doubtful

Summary of asset classification of NPA Mean Minimum Maximum Standard deviation 29156.66 14073.19 88112.77 20507.4 (yr 2005) (yr 2013) 37175.97 14969.11 1721.1

19083.13 68947.37 (yr 2008) (yr 2013) loss 5109.535 3671.53 6535.35 (yr 2008) (yr 2002) Average is close to NPA ratio of period 2009-10 Average is close to NPA ratio of period 2011 Average is close to NPA ratio of period 2006

24303.66 82958.1 (yr 2008) (yr 2013) loss 7189.414 4716.61 10683.83 (yr 1997) (yr 2013) Average is close to NPA ratio of period 2008-09 Average is close to NPA ratio of period of 2010-11 Average is close to NPA ratio of period 2004

Source: RBI, MOF Reference: appendix, table no 2

15

B) Trend in Gross advances of priority and non priority sector (PSB, SCB)(1997-2013) PSB SCB

The rate of increase in gross advances to the non priority sector of PSBs has been steadily rising after 2006 period. However the difference in advances to both priority and non priority sector was not very significant during period 1997 to 2004. Since all banks are required to lend 40%of their advances to non priority sector, the trend in growth rate of advances to non priority sector is showing an increasing trend but is increasing at a decreasing rate.

The major component of SCBs being PSBs, the trend of gross advances in both the sector is similar depicting that the driver in trend of advances in SCBs is PSBs.

Null hypothesis: no significant difference, level of significance 20% gives t value of 1.49(17 obs) To check significance of mean difference in gross advances of PSBs (priority sector and non priority sector) T value=-445708.8/ 455767.6 =0.977<1.49 The gross advance of priority sector is fixed at 40% & the remaining gross advances go to NPS, so the difference in gross advances is not statistically significant. To check significance of mean difference in gross advances of SCBs(priority sector and non priority sector) T value=-646124.9/ 604600.8 =1.06<1.49 The same reason discussed above holds for SCBs as well for insignificance of difference in gross advances. To check significance of mean difference in gross advances of non priority sector(PSBs and SCBs) Non priority sector T value= 326682.1/ 272993.5 =1.19<1.49 The ratio of non priority sector of PSBs to SCBs is maintained above 0.65 throughout the period and so there is no significant difference (refer table no 3) To check significance of mean difference in gross advances of priority sector(PSBs and SCBs) Priority sector T value=126266/122479.3 =1.03<1.49 The ratio of priority sector of PSBs to SCBs is maintained above 0.75 throughout the period and so there is no significant difference (refer table no 3) Conclusion: Since all the t values are less than critical value (1.49), it shows that there is no statistically significant difference in the gross advances of priority sector and non priority sector(PSBs),gross advances of priority sector and non priority sector(SCBs),gross advances of non-priority sector(PSBs and SCBs),gross advances of priority sector(PSBs and SCBs)even at 20% level of significance.
Source: RBI, MOF Reference: appendix, table no 3.

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C) Trend in Gross NPA of priority and non priority sector (PSB, SCB)(1997-2013) PSB SCB

One of the reasons for the rise in gross NPA over the years is that the NPA definition has been revived over the years. W.e.f 1992, the asset is not recognized as income on accrual basis. And w.e.f 31.3.04, the no of days to classify assets under NPA has been reduced from 180 days to 90 days. This effect is clearly evident for both PSBs and SCBs. Also the impact of gross advances on gross NPA has been significant as evident from analysis done in subsequent pages, so the other reason for the rise in gross NPA for PSBs, SCBs has been a rise in gross advances.
Source: RBI, MOF Reference: appendix, table no 4.

D) Trend in NPA ratio of priority and non priority sector rate (PSB, SCB)(1997-2013) PSB SCB

In the initial period the growth rate in gross advances outnumbered growth rate in gross NPA for both priority and non-priority sector, therefore NPA ratio has been declining. While after 2009 onwards the NPA ratio is rising (for PSBs) and 2010 onwards (for SCBs) owing to higher growth rate in gross NPA.
Source: RBI, MOF Reference: appendix, table no 4.

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Analysis 3: Trend, correlation, regression analysis of gross NPA, gross advances, gross NPA ratio

A) Trend in growth rate of NPA ratio, Gross NPA and Gross advances(PSB, SCB)(1998-2013) PSB SCB

The trend in growth rate of gross NPA ratio and Gross advances (from the graph above) does not show any clear correlation between them. However we can draw an inference that the growth rate in NPA ratio has been negative but falling till year 2005 following which the growth rate is showing an upward trend. The trend of falling rate in NPA from period 1998 to 2006 could be attributed to the fact that major efforts were being taken during that time period to recover assets. However the rise in NPA after 2006 is because of the fact that BASEL requirement to recognize NPA reduced its period of keeping it into standard asset from 1 year to 6 months in 2001 and further got reduced to 3 months and a sustained rise in gross advances. The trend in growth rate of gross NPA and gross NPA ratio is similar. Only in 2006 there is some divergence in the growth rate of gross NPA and growth rate of NPA ratio due to an increased growth rate in gross advance ratio. From the above graph there does not seem to be significant difference in the gross NPA, gross advances and gross NPA ratio for PSBs, SCBs & therefore same inference can be drawn for both the graphs.
Source: RBI, MOF Reference: appendix, table no 5

B) Analysis of impact of growth rate in gross advances on growth rate in gross NPA ratio (PSB,SCB)(1998-2013) PSB SCB Correlation analysis Correlation analysis Correlation Growth rate gross Correlation Growth rate gross advances advances Growth rate NPA ratio -0.5941 Growth rate NPA ratio -0.6709 There exist a negative correlation in the growth rate of There exist a negative correlation in the growth rate of NPA ratio and growth rate in gross advances and the NPA ratio and growth rate in gross advances and the magnitude of correlation is given by value 0.5941. magnitude of correlation is given by value 0.6709. Regression study Null hypothesis(Ho): No impact of growth rate in gross advances in growth rate of NPA ratio Regression study Null hypothesis(Ho): No impact of growth rate in gross advances in growth rate of NPA ratio

18

Growth rate NPA ratio=27.37037-1.75Growth rate GA 1% increase in Growth rate GA leads to 1.75% fall in Growth rate NPA ratio R-squared = 0.3529 Adj R-squared = 0.3067 ANNOVA REGRESSION ANALYSIS NPA ratio coefficient T value P>|t| Growth rate -1.759414 -2.76 0.015 There is a significant negative impact of growth rate in gross advances on growth rate in gross NPA of PSBs as the observed t value=-2.76 is less than critical value of -2.13 at 5% level of significance and so we reject our null hypothesis.
Source: RBI, MOF Reference: appendix, table no 5

GrowthrateNPAratio=28.52581 -1.78 Growthrate GA 1% increase in Growth rate GA leads to 1.78% fall in Growth rate NPA ratio of SCB R-squared = 0.4501 Adj R-squared = 0.4109 ANNOVA REGRESSION ANALYSIS NPA ratio Coefficient T value P>|t| Growth rate -1.789216 -3.39 0.004 There is a significant negative impact of growth rate in gross advances on growth rate in gross NPA of SCBs as the observed t value=-3.39 is less than critical value of -2.13 at 5% level of significance and so we reject our null hypothesis.

C) Analysis of impact of growth rate in gross NPA on growth rate in gross NPA ratio (PSB,SCB)(1998-2013) PSB SCB Variables used GR_GNPA= growth rate in gross NPA. GR_GNPA ratio= growth rate in gross NPA ratio. Correlation analysis Correlation analysis Correlation GR_GNPA Correlation GR_GNPA GR_GNPA ratio 0.9791 GR_GNPA ratio 0.9760 There exist a positive correlation in the GR_GNPA and There exist a positive correlation in the GR_GNPA and GR_GNPA ratio the magnitude of correlation is given by GR_GNPA ratio the magnitude of correlation is given by value 0.9791. value 0.9760. Regression study Null hypothesis(Ho): No impact of GR_GNPA on GR_GNPA ratio Regression study Null hypothesis(Ho): No impact of GR_GNPA on GR_GNPA ratio

GR_GNPA ratio=-17.23 +0.93 GR_GNPA

1% increase in Growth rate GNPA leads to 0.93% rise in Growth rate NPA ratio R-squared = 0.958 Adj R-squared =0.955 ANNOVA REGRESSION ANALYSIS GR_GNPA coefficient T value P>|t| ratio GR_GNPA 0.93 18.03 0.00 There is a significant positive impact of GR_GNPA on GR_GNPA ratio of PSBs as the observed t value=18.03 is more than critical value of 2.13 at 5% level of significance and so we reject our null hypothesis.
Source: RBI, MOF Reference: appendix, table no 5

GR_GNPA ratio=-17.86 +0.964 GR_GNPA

1% increase in Growth rate GNPA leads to 0.96% rise in Growth rate NPA ratio R-squared = 0.952 Adj R-squared =0.949 ANNOVA REGRESSION ANALYSIS GR_GNPA coefficient T value P>|t| ratio GR_GNPA 0.964 16.75 0.00 There is a significant positive impact of GR_GNPA on GR_GNPA ratio of SCBs as the observed t value=16.75 is more than critical value of 2.13 at 5% level of significance and so we reject our null hypothesis.

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D) Analysis of impact of growth rate in gross advance on growth rate in gross NPA (PSB, SCB) (1998-2013) PSB SCB Variables used GR_GNPA= growth rate in gross NPA. GR_GA= growth rate in gross advances. Correlation analysis Correlation analysis Correlation GR_GA Correlation GR_GA GR_GNPA -0.4220 GR_GNPA -0.4951 There is a negative and not very strong correlation There is a negative and not very strong correlation between GR_GA, GR_GNPA for PSBs. between GR_GA, GR_GNPA for SCBs. Regression study Null hypothesis(Ho): No impact of GR_GA on GR_GNPA GR_GNPA = 36.0503 -1.30GR_GA 1% increase in Growth rate GA leads to 1.30% fall in Growth rate NPA ratio R-squared = 0.1781 Adj R-squared = 0.1194 ANNOVA REGRESSION ANALYSIS GR_GNPA coefficient Std T value P>|t| error GR_GA -1.30 .74 -1.74 0.103 The null hypothesis is rejected as there is a significant negative impact of GR_GA on GR_GNPA of PSBs as the observed t value=-1.74 is less than critical value of -1.753 (15 degrees of freedom, n=16) at 10% level of significance. Source: RBI, MOF Reference: appendix, table no 5 Regression study Null hypothesis(Ho): No impact of GR_GA on GR_GNPA GR_GNPA = 37.49125 -1.335169GR_GA 1% increase in Growth rate GNPA leads to 1.30 % rise in Growth rate NPA ratio R-squared = 0.2451 Adj R-squared = 0.1912 ANNOVA REGRESSION ANALYSIS GR_GNPA coefficient Std T value P>|t| error GR_GA -1.33 .62 -2.13 0.051 The null hypothesis is rejected as there is a significant negative impact of GR_GA on GR_GNPA of SCBs as the observed t value=-2.13is less than critical value of -1.753 (15 degrees of freedom, n=16) at 10% level of significance.

20

Analysis 4: Trends, descriptive analysis of all the sectors gross NPA A) Trend analysis of ratio of gross NPA of sectors component of PS to gross NPA of PS (PSB, SCB) (1997-2013) PSB SCB Variables used AGRI_PS=ratio of gross NPA of agriculture to gross NPA of priority sector. SSI _PS= ratio of gross NPA of SME to gross NPA of priority sector. OPS_PS= ratio of gross NPA of OPS to gross NPA of priority sector.

Variable AGRI_PS

Descriptive figures on gross NPA Mean Minimum Maximum .3182922 .236165 .4191641 (close to yr (yr 2009) (yr 2013) 1999) SME_PS .3604451 .2295576 .4293474 (close to yr (yr 2008) (yr 2000) 2004) OPS_PS .3212627 .1876375 .4748553 (close to yr (yr 2013) (yr 2009) 2004)

Variable AGRI_PS

Descriptive figures on gross NPA Mean Minimum maximum .3144889 .2524127 .4126106 (close to yr (yr 2009) (yr 2013) 1998) SME_PS .3631183 .2245504 .4370545 (close to yr (yr 2008) (yr 2001) 2010) OPS_PS .3223928 .1976695 .4699273 (close to yr (yr 2013) (yr 2007) 2004)

Source: RBI, MOF Reference: analysis 4,(B),(C)

B) Descriptive analysis of ratio of gross NPA of sectors component of PS to gross NPA (PSB) (1997-2013) Variables used AGRI_PS=ratio of gross NPA of agriculture to gross NPA of priority sector. SME_PS= ratio of gross NPA of SME to gross NPA of priority sector. OPS_PS= ratio of gross NPA of OPS to gross NPA of priority sector. YEAR AGRI_PS SME_PS OPS_PS Max Min 1997 0.353468 0.394533 0.251999 SME OPS 1998 0.319314 0.409639 0.271047 SME OPS 1999 0.318983 0.427682 0.253334 SME OPS 2000 0.308743 0.429347 0.26191 SME OPS

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2001 0.305372 0.428022 0.266605 SME OPS 2002 0.315126 0.417061 0.267812 SME OPS 2003 0.309056 0.407466 0.283478 SME OPS 2004 0.3037 0.370713 0.325587 SME Agri 2005 0.310037 0.334865 0.355098 OPS Agri 2006 0.277241 0.309175 0.413584 OPS Agri 2007 0.283456 0.254569 0.461975 OPS SME 2008 0.326972 0.229558 0.443471 OPS SME 2009 0.236165 0.28898 0.474855 OPS Agri 2010 0.27004 0.374032 0.355928 SME Agri 2011 0.350894 0.348367 0.300739 Agri OPS 2012 0.403237 0.310359 0.286405 Agri OPS 2013 0.419164 0.393198 0.187638 Agri OPS From 1997-2004, the proportion of gross NPA of SME constituted the largest proportion in total priority sector gross NPA. While the trend reversed in 2005 to 2009 during which the largest proportion was OPS and from 20011 onwards, agriculture sectors share to PS gross NPA has been the highest.
Source: RBI, MOF

C) Descriptive analysis of ratio of gross NPA of sectors component of PS to gross NPA of PS ( SCB)(1997-2013) YEAR AGRI_PS SSI_PS OPS_PS Max Min 1997 0.346742 0.400867 0.252391 SME OPS 1998 0.311163 0.415126 0.273711 SME OPS 1999 0.309028 0.434863 0.256109 SME OPS 2000 0.300511 0.433746 0.265743 SME OPS 2001 0.293437 0.437054 0.269509 SME OPS 2002 0.302151 0.432601 0.265248 SME OPS 2003 0.299432 0.419647 0.280921 SME OPS 2004 0.291568 0.385964 0.322468 SME Agri 2005 0.29946 0.344364 0.356176 OPS Agri 2006 0.269876 0.312578 0.417546 OPS Agri 2007 0.282975 0.25127 0.465755 OPS SME 2008 0.33528 0.22455 0.44017 OPS SME 2009 0.252413 0.27766 0.469927 OPS Agri 2010 0.284743 0.356809 0.358448 OPS Agri 2011 0.355042 0.341689 0.303269 Agri OPS 2012 0.39988 0.314504 0.285616 Agri OPS 2013 0.412611 0.38972 0.19767 Agri OPS From 1997-2004, the proportion of gross NPA of SME constituted the largest proportion in total priority sector gross NPA. While the trend reversed in 2005 to 2010 during which the largest proportion was OPS and from 2011 onwards, agriculture sectors share to PS gross NPA has been the highest. Only for the year 2010, the maximum share sector differed between SCBs and PSBs as the maximum share in PSBs is of SME sector, and OPS of SCBs.
Source: RBI, MOF

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D) Trend analysis of ratio of gross NPA of PS, NPS to total sector gross NPA (PSB, SCB)(1997-2013) PSB SCB Variables used PS_T=Ratio of gross NPA of total priority sector over gross NPA of total sector(priority sector +non-priority sector), NPS_T= Ratio of gross NPA of non-priority sector over gross NPA of total sector(priority sector +non-priority sector)

variable PS_T

NPS_T

Descriptive figures on gross NPA Mean Min Max .5096199 .4438695 .638549 (close to yr (yr 2013) (yr 2008) 2005) .4903801 .361451 .5561305 (close to yr (yr 2008) (yr 2013) 1997 & 2012)

Variable PS_T

NPS_T

Descriptive figures on gross NPA Mean Min Max .5096199 .4438695 .638549 (close to yr (yr 2013) (yr 2008) 2005) .4903801 .361451 .5561305 (close to yr (yr 2008) (yr 2013) 1997 & 2012)

Descriptive analysis of PS_T,NPA_T & analysis of year wise minimum, maximum share out of PS_T, NPS_T (PSBs) YEAR PS_T NPS_T Min Max 1997 0.497501 0.502499 PS_T NPS_T 1998 0.487873 0.512127 PS_T NPS_T 1999 0.47049 0.52951 PS_T NPS_T 2000 0.454887 0.545113 PS_T NPS_T 2001 0.453438 0.546562 PS_T NPS_T 2002 0.461828 0.538172 PS_T NPS_T 2003 0.472264 0.527736 PS_T NPS_T 2004 0.475396 0.524604 PS_T NPS_T 2005 0.499762 0.500238 PS_T NPS_T 2006 0.540713 0.459287 NPS_T PS_T 2007 0.599236 0.400764 NPS_T PS_T 2008 0.638549 0.361451 NPS_T PS_T 2009 0.548874 0.451126 NPS_T PS_T 2010 0.538388 0.461612 NPS_T PS_T 2011 0.580855 0.419145 NPS_T PS_T

Descriptive analysis of PS_T,NPA_T & analysis of year wise minimum, maximum share out of PS_T, NPS_T (SCBs) YEAR PS_T NPS_T Min Max 1997 0.481541 0.518459 PS_T NPS_T 1998 0.460708 0.539292 PS_T NPS_T 1999 0.437402 0.562598 PS_T NPS_T 2000 0.425153 0.574847 PS_T NPS_T 2001 0.417158 0.582842 PS_T NPS_T 2002 0.39369 0.60631 PS_T NPS_T 2003 0.39311 0.60689 PS_T NPS_T 2004 0.416783 0.583217 PS_T NPS_T 2005 0.444616 0.555384 PS_T NPS_T 2006 0.485774 0.514226 PS_T NPS_T 2007 0.52073 0.47927 NPS_T PS_T 2008 0.521392 0.478608 NPS_T PS_T 2009 0.415494 0.584506 PS_T NPS_T 2010 0.444506 0.555494 PS_T NPS_T 2011 0.498583 0.501417 PS_T NPS_T

23

2012 0.499613 0.500387 PS_T NPS_T 2013 0.44387 0.55613 PS_T NPS_T For PSBs, the share of gross NPA ratio of NPS in total gross NPA ratio has been maximum from period 1997 to 2005, while from 2006 to 2011 the share of priority sector was maximum until the trend reversed again in 2012 and 2013.
Source: RBI, MOF

2012 0.452839 0.547161 PS_T NPS_T 2013 0.410518 0.589482 PS_T NPS_T For SCBs, the share of gross NPA ratio of NPS in total gross NPA ratio has been maximum from period 1997 to 2006 and 2009 to 2013. Only for period 2007, 2008 the NPA ratio has been high mainly because of the priority sector gross NPA ratio.

E) Analysis of factors leading to growth rate in gross NPA ratio (PSB) (1998-2013) Variables used PS_GA=growth rate of gross advances of priority sector,

PS_NPA=growth rate of gross NPA of priority sector, PS_NPA ratio= growth rate of gross NPA ratio of priority sector, NPS_GA= growth rate of gross advances of non-priority sector, NPS_NPA= growth rate of gross NPA of non-priority sector, NPS_NPA ratio= growth rate of gross NPA ratio of non-priority sector
High High (among NPS_GA NPS_NPA NPS_NPA (among PS_GA, ratio NPS_GA, YEAR PS_NPA) NPS_NPA) GA GA 1998 17.6 4.2 -11.4392 15.8 8.3 -6.52141 GA NPA 1999 16.0 5.3 -9.23179 12.4 12.9 0.469635 GA GA 2000 23.0 3.6 -15.7412 16.0 10.3 -4.91903 GA GA 2001 8.9 5.0 -3.52508 20.8 5.6 -12.5813 GA GA 2002 15.0 4.1 -9.45916 16.1 0.7 -13.3274 GA GA 2003 18.1 -0.8 -16.0669 12.1 -4.9 -15.1563 GA GA 2004 22.1 -4.4 -21.6894 12.0 -5.6 -15.6786 GA GA 2005 28.7 -1.9 -23.7183 33.5 -11.0 -33.3361 GA GA 2006 32.8 -4.4 -27.9719 30.0 -18.9 -37.5967 GA GA 2007 26.5 2.6 -18.8949 29.3 -19.2 -37.5484 GA GA 2008 19.0 10.2 -7.42935 26.0 -6.8 -26.0143 GA NPA 2009 17.0 -4.4 -18.2829 27.4 38.8 8.90941 NPA NPA 2010 21.9 27.6 4.693776 18.6 33.1 12.24349 NPA GA 2011 21.1 33.9 10.53392 22.2 12.7 -7.77648 NPA NPA 2012 10.4 36.1 23.32774 18.9 88.9 58.88564 NPA NPA 2013 10.6 21.4 9.756765 15.5 51.9 31.57003 The fact that growth rate in NPA ratio is negative in some years and positive in some years depend on the magnitude of growth rate of gross advances and growth rate of gross NPA. In years when growth rate in gross advances is higher than growth rate in gross NPA, the growth rate in gross NPA ratio is negative and in years when growth rate in gross advances is lower than the growth rate in gross NPA, the growth rate in gross NPA ratio is positive. From year 2009 onwards, the growth rate in gross NPA ratio is positive and constantly rising, reached its maximum growth rate at 23% for priority sector and 58% in non-priority sector in 2012. Measures must be taken to reduce NPA ratio growth rate as fast as possible. Aim should be to reduce growth rate in gross NPA and not growth rate in gross NPA ratio because growth rate in gross NPA ratio can be reduced by stepping up growth rate of gross advances as well. Serious steps need to be taken to reduce gross NPA growth rate. PS_GA PS_NPA PS_NPA ratio
Source: RBI, MOF

24

F) Analysis of factors leading to growth rate in gross NPA ratio (SCB) (1998-2013) Variables used PS_GA=growth rate of gross advances of priority sector,

PS_NPA=growth rate of gross NPA of priority sector,

PS_NPA ratio= growth rate of gross NPA ratio of priority sector,

NPS_GA= growth rate of gross advances of non-priority sector, NPS_NPA= growth rate of gross NPA of non-priority sector, NPS_NPA ratio= growth rate of gross NPA ratio of non-priority sector
High High (among NPS_GA NPS_NPA NPS_NPA (among PS_GA, ratio NPS_GA, YEAR PS_NPA) NPS_NPA) GA GA 1998 17.4 5.10 -10.4778 16.7 14.27 -2.06223 GA NPA 1999 16.8 6.29 -9.00631 11.6 16.79 4.617816 GA GA 2000 24.1 4.63 -15.7091 18.0 9.99 -6.80638 GA GA 2001 9.6 6.00 -3.31768 21.6 9.53 -9.92755 GA GA 2002 14.7 6.70 -7.00718 27.7 17.61 -7.89163 GA GA 2003 21.5 -1.65 -19.0378 11.6 -1.41 -11.6288 GA GA 2004 25.5 -3.82 -23.3959 12.1 -12.82 -22.2218 GA GA 2005 29.8 -2.57 -24.9169 31.6 -13.03 -33.8978 GA GA 2006 36.2 -3.51 -29.1553 28.4 -18.23 -36.3323 GA GA 2007 29.0 4.58 -18.9389 28.2 -9.06 -29.0841 GA GA 2008 19.7 11.53 -6.8106 24.9 11.24 -10.9553 GA NPA 2009 16.5 -2.39 -16.246 21.1 49.57 23.49831 NPA GA 2010 19.5 28.29 7.404503 15.9 13.97 -1.69941 NPA GA 2011 20.6 29.04 6.981471 23.1 3.85 -15.6341 NPA NPA 2012 11.7 32.30 18.46044 19.4 58.95 33.09395 NPA NPA 2013 12.6 20.17 6.737132 15.9 42.82 23.21588 The fact that growth rate in NPA ratio is negative in some years and positive in some years depend on the magnitude of growth rate of gross advances and growth rate of gross NPA. In years when growth rate in gross advances is higher than growth rate in gross NPA, the growth rate in gross NPA ratio is negative and in years when growth rate in gross advances is lower than the growth rate in gross NPA, the growth rate in gross NPA ratio is positive. The growth rate in gross NPA ratio is positive for priority sector from year 2010 onwards while for the non priority sector, the growth rate in gross NPA is positive from 2012 onwards.

PS_GA PS_NPA

PS_NPA ratio

Source: RBI, MOF

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Analysis 5: Trend, correlation, regression analysis of growth rate of NPA ratio, growth rate in banks net profits, gross NPA ratio, net bank profits,NPA reduction .

A) Trend, correlation, regression analysis of analysis of growth rate in NPA ratio and growth rate in bank profitability (PSB, SCB)( Year 1997-2013) PSB SCB

Variables used- GR_P= Growth rate in profits, GR_NPA=Growth rate in NPA ratio Correlation analysis Correlation analysis Correlation GR_NPAratio Correlation GR_NPAratio GR_P -0.1557 GR_P -0.0979 The correlation result shows no clear trend of strong negative correlation between growth rate in PSBs profits and growth rate of NPA ratio. Regression study Null hypothesis(Ho):growth rate in NPA ratio has no impact on growth rate of bank profits GR_P=20.52919 + -.294049 GR_NPAratio The regression analysis show that a 1% fall in GR_NPA ratio will lead to .29% increase in GR_P. ANNOVA REGRESSION ANALYSIS GR_P coefficient T value P>|t| GR_NPA -.294049 -0.59 0.565 Ratio Since the generated statistics depicts that the null hypothesis (no impact of growth rate of NPA ratio on growth rate of PSB bank profitability), is accepted at 10%, 5% level of significance implying no significant negative impact of growth rate of NPA ratio on growth rate of PSB banks profits.
Source: RBI, MOF Reference: appendix table no 5

The correlation result shows no clear trend of strong negative correlation between growth rate in SCBs profits and growth rate of NPA ratio. Regression study Null hypothesis(Ho): growth rate in NPA ratio has no impact on growth rate of bank profits GR_P=21.44763 +-.1861091 GR_NPAratio The regression analysis show that a 1% fall in GR_NPA ratio will lead to only .18% increase in GR_P. ANNOVA REGRESSION ANALYSIS GR_P coefficient T value P>|t| GR_NPA -.1861091 -0.37 0.718 Ratio Since the generated statistics depicts that the null hypothesis (no impact of growth rate of NPA ratio on growth rate of PSB bank profitability), is accepted at 10%, 5% level of significance implying no significant negative impact of growth rate of NPA ratio on growth rate of SCB banks profits.

26

B) Trend, correlation, regression analysis of NPA ratio and bank net profits (PSB, SCB)( Year 1997-2013) PSB SCB Variables used NPA ratio_PSB, SCB= gross NPA ratio of PSBs, SCBs. P_PSB,SCB= net profits of banks(PSB, SCB)

NPA ratio

Net profits Correlation analysis NPA ratio_PSB -0.8293

NPA ratio

Net profits

Correlation P_PSB

Correlation analysis Correlation NPA ratio_SCB P_SCB -0.7975 There is very strong correlation between NPA ratio of SCBs, and SCBs net profits. Regression study Null hypothesis(Ho): no impact of NPA ratio_SCB on P_SCB. P_SCB= 60354.73 -4038.189 NPA ratio_SCB The regression analysis show that a 1 unit rise in NPA ratio of SCB leads to 4038.18 unit fall in P_SCB. R-squared = 0.6361 Adj R-squared = 0.6118 ANNOVA REGRESSION ANALYSIS P_SCB coefficient T value Std P>|t| error NPA -4038.18 -5.12 788.65 0.000 ratio_SCB There is significant negative impact of NPA ratio_SCB on P_SCB and the null hypothesis is rejected at 5% level of significance as the observed t value=-5.12 is less than critical value of -2.13(n=17, degrees of freedom=16).

There is very strong correlation between NPA ratio of PSBs, and PSBs net profits. Regression study Null hypothesis(Ho): no impact of NPA ratio_PSB on P_PSB. P_PSB=36974.39 -2174.655 NPA ratio_PSB The regression analysis show that a 1 unit rise in NPA ratio of PSB leads to 2174.65 unit fall in P_PSB. R-squared = 0.6878 Adj R-squared = 0.6670 ANNOVA REGRESSION ANALYSIS P_PSB coefficient T value Std P>|t| error NPA -2174.65 -5.75 378.3 0.00 ratio_PSB There is significant negative impact of NPA ratio_PSB on P_PSB and the null hypothesis is rejected at 5% level of significance as the observed t value=-5.75 is less than critical value of -2.13( n=17, degrees of freedom=16).
Source: RBI, MOF Reference: appendix table no 6

27

C) Trend, correlation, regression analysis of NPA reduction and banks net profits (PSB, SCB)( Year 1997-2013) PSB SCB Variables used NPA reduction_PSB,SCB= NPA reduction in PSBs, SCBs. P_PSB,SCB=net profits of banks in PSBs, SCBs.

Correlation analysis Correlation NPAred_PSB P_PSB 0.9293 The correlation between P_PSB and NPAred_PSB is very high and positive and the magnitude is 0.9293 Regression study Null hypothesis(Ho): no impact of NPAred_PSB on P_PSB P_PSB= -6093.737 +1.28 NPA red_PSB 1 unit reduction in NPA of PSBs leads to 1.28 unit increase in PSB bank profits. R-squared = 0.8162 Adj R-squared = 0.7979 ANNOVA REGRESSION ANALYSIS coefficient T value 1.28 6.66

Correlation analysis Correlation NPAred_SCB P_SCB 0.9492 The correlation between P_SCB and NPAred_SCB is very high and positive and the magnitude is 0.9035 Regression study Null hypothesis(Ho): no impact of NPAred_SCB on P_SCB P_SCB= -11425.3 +1.54 NPA red_SCB 1 unit reduction in NPA of SCBs leads to 1.54 unit increase in PSB bank profits. R-squared = 0.9009 Adj R-squared = 0.8910 ANNOVA REGRESSION ANALYSIS coefficient T value P>|t| 1.54 9.54 0.000

P_PSB P>|t| NPA 0.000 red_PSB There is significant positive impact of NPA reduction_PSB on P_PSB and the null hypothesis is rejected at 5% level of significance as the observed t value=6.66 is higher than critical value of 2.13( n=17, degrees of freedom=16).
Source: RBI, MOF Reference: Apendix, table no 1(NPA reduction), 6

P_SCB NPA red_SCB There is significant positive impact of NPA reduction_SCB on P_SCB and the null hypothesis is rejected at 5% level of significance as the observed t value=9.54 is higher than critical value of 2.13( n=17, degrees of freedom=16).

28

Analysis 6: Trend, correlation , regression analysis among gross advances and gross NPA of all the sectors

A) Trend, correlation, regression analysis of gross advances on gross NPA (agriculture)(1997-2013) PSB SCB

The gross NPA in the recent period has shot up for the agriculture sector for both PSBs, SCBs. Descriptive figures on gross advances, gross NPA Variable Mean Min Max Gross Adv Gross NPA 180811.5 (close to yr 2007) 9784.771 (close to yr 2010) 29095.95 (yr 1997) 5707.62 (yr 2009) 524006.9 (yr 2013) 28604.44 (yr 2013) Descriptive figures on gross advances, gross NPA Variable Mean Min Max Gross adv Gross NPA 217906.5 (close to yr 2007) 10733.47 (close to yr 2010) 30862.8 (yr 1997) 6717.88 (yr 2006) 636732.9 (yr 2013) 30786.35 (yr 2013)

Correlation Gross advances

Correlation analysis Gross NPA 0.8037

correlation Gross advances

Correlation analysis Gross NPA 0.8388

There is a strong correlation between gross NPA and gross advances in agriculture sector of PSBs and the magnitude of correlation is given by 0.8037 Regression study Null hypothesis(Ho): gross advances has no impact on gross NPA of agriculture sector(PSBs) Gross NPA= 4264.744 + .0305292 Gross advances A 1 unit increase in Gross advances leads to 0.03 unit increase in Gross NPA. R-squared = 0.6459 Adjusted R-squared = 0.6223

There is a strong correlation between gross NPA and gross advances in agriculture sector of SCBs and the magnitude of correlation is given by 0.8388 Regression study Null hypothesis(Ho): gross advances has no impact on gross NPA of agriculture sector(SCBs) Gross NPA= 4601.029 + 0 .0281425 Gross advances A 1 unit increase in Gross advances leads to 0.028 unit increase in Gross NPA. R-squared = 0.7036 Adjusted R-squared = 0.6839

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ANNOVA REGRESSION ANALYSIS Gross NPA Gross advances coefficient .0305292 T value 5.23 P>|t| 0.000

ANNOVA REGRESSION ANALYSIS Gross NPA Gross advances coefficient .0281425 T value 5.97 P>|t| 0.000

Since the observed t value=5.23 is much higher than critical t value at 10%, 5% level of significance, we conclude that there is a significant impact of gross advances on gross NPA in this sector for PSBs.

Since the observed t value=5.97 is much higher than critical t value at 10%, 5% level of significance, we conclude that there is a significant impact of gross advances on gross NPA in this sector.

Source: RBI Reference: Appendix table no 7 and 8

B) Trend, correlation, regression analysis of gross advances on gross NPA (SME)(1997-2013) PSB SCB

Descriptive figures on gross advances, gross NPA Variable Mean Min Max Gross adv Gross NPA 138338.8 (close to yr 2008) 10552.89 (close to yr 2002) 30905.18 (yr 1997) 5804.75 (yr 2008) 461057.1 (yr 2013) 26832.49 (yr 2013)

Descriptive figures on gross advances, gross NPA Variable Mean Min Max Gross adv Gross NPA 176996.5 (close to yr 2008) 11724.41 (close to yr 2003) 37261.98 (yr 1997) 6520.75 (yr 2008) 603958.9 (yr 2013) 29078.39 (yr 2013)

Correlation analysis Correlation Gross NPA Gross advances 0.8103 There is a strong correlation between gross NPA and gross advances in SME sector of PSBs and the magnitude of correlation is given by 0.8103

Correlation analysis Correlation Gross NPA Gross advances 0.8147 There is a strong correlation between gross NPA and gross advances in SME sector of PSBs and the magnitude of correlation is given by 0.8147.

30

Regression study Null hypothesis(Ho): gross advances has no impact on gross NPA of SME sector(PSBs) Gross NPA=6269.786 + .0309609 gross advances A 1 unit increase in Gross advances leads to 0.03 unit increase in Gross NPA. R-squared =0.6566 Adjusted R-squared = 0.6337 ANNOVA REGRESSION ANALYSIS Gross NPA Gross advances coefficient .0309609 T value 5.36 P>|t| 0.000

Regression study Null hypothesis(Ho): gross advances has no impact on gross NPA of SME sector(SCBs) Gross NPA= 7223.423 + .0254298Gross advances A 1 unit increase in Gross advances leads to 0.025 unit increase in Gross NPA. R-squared =0.6637 Adjusted R-squared = 0.6413 ANNOVA REGRESSION ANALYSIS Gross NPA Gross advances coefficient .0254298 T value 5.44 P>|t| 0.000

There is a significant impact of gross advances on gross NPA in SME sector as the observed t value is greater than critical value and so the null is rejected at 1%, 5% level of significance.
Source: RBI Reference: Appendix table no 7 and 8

There is a significant impact of gross advances on gross NPA in SME sector of SCBs also as the observed t value is greater than critical value and so the null is rejected at 1%, 5% level of significance.

C) Trend, correlation, regression analysis of gross advances on gross NPA (other priority sector)(OPS)(1997-2013) PSB SCB

Correlation analysis Correlation Gross NPA Gross advances 0.9705 There is a very strong correlation between gross advances and gross NPA in other priority sectors and the magnitude of correlation is 0.9705

Correlation analysis Correlation Gross NPA Gross advances 0.9801 For the SCBs as well, there is a very strong correlation between gross advances and gross NPA in other priority sectors and the magnitude of correlation is 0.9801.

31

Regression study Null hypothesis(Ho): gross advances has no impact on gross NPA of OPS sector(PSBs) Gross NPA= 4844.459 + .0287641 Gross advances A 1 unit increase in Gross advances leads to 0.028 unit increase in Gross NPA. R-squared = 0.9419 Adjusted R-squared = 0.9380 ANNOVA REGRESSION ANALYSIS Gross NPA Gross advances Coefficient .0287641 T value 15.59 P>|t| 0.000

Regression study Null hypothesis(Ho): gross advances has no impact on gross NPA of OPS sector(SCBs) Gross NPA= 5299.201 + .0246719 Gross advances A 1 unit increase in Gross advances leads to 0.024 unit increase in Gross NPA. R-squared = 0.9607 Adjusted R-squared = 0.9580 ANNOVA REGRESSION ANALYSIS Gross NPA Gross advances Coefficient .0246719 T value 19.14 P>|t| 0.000

There is a significant impact of gross advances on gross NPA in OP sectors as the observed t value is greater than critical value and so the null is rejected at 1%, 5% level of significance.
Source: RBI Reference: Appendix table no 7 and 8.

For the SCBs as well, there is a significant impact of gross advances on gross NPA in OP sectors as the observed t value is greater than critical value and so the null is rejected at 1%, 5% level of significance.

D) Trend, correlation, regression analysis of gross advances on gross NPA (total priority sector, TPS)(1997-2013) PSB SCB

Descriptive figures on gross advances, gross NPA Variable Mean Min Max Gross adv Gross NPA 464894.2 (close to yr 2007) 29374.28 (close to yr 2010) 76732.83 (yr 1997) 20237.07 (yr 1997) 1260126 (yr 2013) 68241.62 (yr 2013)

Descriptive figures on gross advances, gross NPA Variable Mean Min Max Gross adv Gross NPA 591160.3 (close to yr 2007) 32599.09 (close to yr 2008&2010) 87536.74 (yr 1997) 21174.35 (yr 1997) 1647748 (yr 2013) 74613.57 (yr 2013)

32

Correlation analysis Correlation Gross NPA Gross advances 0.8513 There is a strong correlation between gross advances and gross NPA in total priority sectors and the magnitude of correlation is 0.8513 Regression study Null hypothesis(Ho): gross advances has no impact on gross NPA of TPS sector(PSBs) Gross NPA= 16000.52 + .0287673 Gross advances A 1 unit increase in Gross advances leads to 0.028 unit increase in Gross NPA. R-squared = 0.7246 Adjusted R-squared = 0.7063 ANNOVA REGRESSION ANALYSIS Gross NPA Gross advances coefficient .0287673 T value 6.28 P>|t| 0.000

Correlation analysis correlation Gross NPA Gross advances 0.8803 There is a strong correlation between gross advances and gross NPA in total priority sectors and the magnitude of correlation is 0.8803 Regression study Null hypothesis(Ho): gross advances has no impact on gross NPA of TPS sector(SCBs) Gross NPA= 17701.73 + .0252002 Gross advances A 1 unit increase in Gross advances leads to 0.025 unit increase in Gross NPA. R-squared =0.7750 Adjusted R-squared =0.7600 ANNOVA REGRESSION ANALYSIS Gross NPA Gross advances coefficient .0252002 T value 7.19 P>|t| 0.000

There is a significant impact of gross advances on gross NPA in TPS sectors as the observed t value is greater than critical value and so the null is rejected at 1%, 5% level of significance.
Source: RBI Reference: Appendix table no 7 and 8.

For the SCBs as well, there is a significant impact of gross advances on gross NPA in TPS sectors as the observed t value is greater than critical value and so the null is rejected at 1%, 5% level of significance.

E) Trend, correlation, regression analysis of gross advances on gross NPA (Non priority sector)(1997-2013) PSB SCB

33

Descriptive figures on gross advances, gross NPA Variable Mean Min Max Gross advances Gross NPA 910603 (close to yr 2007) 29276.68 (close to yr 2001) 145935 (yr 1997) 14313.54 (yr 2008) 2783926 (yr 2013) 85500.91 (yr 2013)

Descriptive figures on gross advances, gross NPA Variable Mean Min Max Gross advances Gross NPA 1237285 (close to yr 2007) 40937.87 (close to yr 2009) 192002.4 (yr 1997) 22797.74 (yr 1997) 3712568 (yr 2013) 107141.1 (yr 2013)

Correlation analysis Correlation Gross NPA Gross advances 0.6901 There is a strong and positive correlation between gross advances and gross NPA of NP sector but not as strongly correlated to each other as were the figures for priority sectors.

Correlation analysis correlation Gross NPA Gross advances 0.7968 Similarly for SCBs, there is a strong and positive correlation between gross advances and gross NPA of NP sector but not as strongly correlated to each other as were the figures for priority sectors. But their correlation for the SCBs is almost 1% higher than for PSBs. Regression study Null hypothesis(Ho): gross advances has no impact on gross NPA of NPS sector(SCBs) Gross NPA=22355.75 + .015018 Gross advances A 1 unit increase in Grossadvances leads to .015018 unit increase in Gross NPA R-squared =0.6349 Adjusted R-squared = 0.6106 ANNOVA REGRESSION ANALYSIS Gross NPA Gross advances coefficient .015018 T value 5.11 P>|t| 0.000

Regression study Null hypothesis(Ho): gross advances has no impact on gross NPA of NPS sector(PSBs) Gross NPA= 16594.53 + .013927Grossadvances A 1 unit increase in Gross advances leads to .013927 unit increase in Gross NPA R-squared = 0.4762 Adjusted R-squared = 0.4413 ANNOVA REGRESSION ANALYSIS Gross NPA Gross advances coefficient .0139272 T value 3.69 P>|t| 0.002

As the observed t value is greater than critical value, so the null is rejected at 1%, 5% level of significance implying that there is a significant impact of gross advances on gross NPA in NP sectors.

Similarly for SCBs, there is a significant impact of gross advances on gross NPA in NP sectors as the observed t value is greater than critical value and so the null is rejected at 1%, 5% level of significance.

Source: RBI Reference: Appendix table no 7 and 8

34

Analysis 7: Trend, correlation, descriptive, regression analysis of reduction in NPA and its components (comparative analysis of PSBs, SCBs) A) Reduction in NPA A.1) Reduction in NPA (actual recovery +recovery due to up-gradation +recovery due to compromise settlement)(PSB, SCB)(2001-2012)

The reduction in NPA has been constantly rising over a period of time for both PSBs, SCBs.
Source: RBI Reference: Appendix table no 1.

Brief analysis of the above figures (2001-2012) (PSBs, SCBs) Variable SCB PSB Mean 33919 (close to yr 2011) 24929.75 (close to yr 2009) Std. Dev. 14996.17 9589.978 Max 62603 (yr 2012) 49998 (yr 2012) Min 16411 (yr 2001) 13629 (yr 2001)

A.2) Correlation analysis of NPA reduction with its components (2001-2012) PSB Variable Due to up-gradation Due to compromise settlement/ write off Actual recovery
Source: RBI, MOF

SCB Reduction in NPA 0.9644 0.8778 0.9459 Variable Due to up-gradation Due to compromise settlement/ write off Actual recovery Reduction in NPA 0.9459 0.9702 0.9329

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B) Actual recovery B.1) Trend analysis of actual recovery (PSB, SCB) (2001-2012) Variable usedAR_PSB= actual recovery in PSBs. AR_SCB= Actual recovery in SCBs

Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 AR_PSB 6178 5806 6245 6928 9413 10518 9571 10246 11351 9911 14121 17271 AR_SCB 7895 6812 7943 11065 12709 12925 11725 11970 14754 14146 18815 21849 The actual recovery in NPA of both PSBs, and SCBs has been constantly rising since 2001. However the growth rate of recovery in SCBs is higher as compared to growth rate of recovery in PSBs from 2010 onwards showing higher recovery pick up from other category of SCBs such as (foreign, private sector banks). B.2) Correlation analysis of actual recovery between PSBs, SCBs Correlation AR_SCB AR_PSB 0.9764

B.3) Trend analysis of actual recovery (PSB to SCB ratio)(2002-2013)

Year AR (PSB to SCB ratio)

2001 2002 2003

0.78 0.85 0.78

2004
(min) 0.62

2005
0.74

2006
0.81

2007
0.81

2008
(max) 0.85

2009
0.76

2010
0.70

2011
0.75

2012
0.79

36

The ratio of actual recovery of PSB to SCB remained stagnant around .8 almost throughout the period from 2001 to 2012(except for year 2005) implying that 80% of actual recovery in SCB is from PSBs. Recovery effort Cash recovery Banks, instead of organizing a recovery drive based on over dues, must short list those accounts, the recovery of which would provide impetus to the system in reducing the pressure on profitability by reduced provisioning burden. Vigorous efforts need to be made for recovery of critical amount (overdue interest and installment) that can save an account from NPA classification. C) Reduction in NPA due to up- gradation C.1) Trend analysis of Reduction in NPA due to up- gradation (2001-2012)

Footnote: Variable used- due to up-gradation(PSBs, SCBs)-recovery in NPA due to up-gradation Tabulation of the above figures Variable usedUPGD_PSB: recovery due to up-gradation in PSBs, UPGD_SCB:recovery due to up-gradation in SCBs. Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 UPGD_PSB 1896 1824 3036 2469 3856 3787 3508 4439 8401 8838 11081 17176

UPGD_SCB 2070 2114 3619 3451 4206 4398 3972 4989 9607 10623 13620 19862 The recovery due to up-gradation is consistently rising for both SCBs and PSBs. However the gap in recovery in PSBs and SCBs has diverged in 2009 but is stable. C.2) Correlation analysis of reduction in NPA due to up-gradation between PSBs, SCBs Correlation Up-gradation SCB Up-gradation PSB 0.9983 The correlation between recovery due to Up-gradation PSB and Up-gradation SCB is very strong at 0.9983

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C.3) Trend analysis of up-gradation ratio for the period (2001-2012) Variable used(UPGD_ratio)upgradation_ratio=recovery due to Up-gradation of PSBs /recovery due to Upgradation of SCBs

Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 UPGD_ratio 0.915 0.862 0.838 0.715 0.916 0.861 0.883 0.889 0.874 0.831 0.813 0.864 The upgradation_ratioshare of upgradation of PSBs in SCBs has declined over a period of time from 0.9 in 2001 to .8 in 2012. It fell sharply in 2005 but later on picked up its share in SCBs recovery due to upgradation. Recovery effort Up gradation of assets Once accounts become NPA, then bankers should take steps to up-grade them by recovering the entire over dues. Close follow-up will generally ensure success.

D) Reductions in NPA due to compromise settlement/ write-off (2001-2012) D.1) Trend analysis of recovery due to compromise/write off (PSB,SCB) for the period 2001-2012)

Footnote: Variables used= Compromise write off SCB, Compromise write off PSB The recovery due to compromise settlement has not seen a sharp increase in the recent year. Prior to that however, there was a steady rise in compromise settlement recovery in PSBs, and so in SCBs.

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Tabulation of the above figures Variable used- COMP_PSB=recovery due to compromise settlement, write off in PSB COMP_SCB=recovery due to compromise settlement, write off in SCB Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 COMP_PSB 5555 6428 9448 11309 8048 8799 9188 8018 6966 11185 17794 15551 COMP_SCB 6446 8710 11620 13560 10822 11657 11620 11653 15995 25019 23895 20892 The recovery due to compromise write off in PSBs and SCBs has been consistently rising from 2001(since when the data is available). For PSBs, it increased from 5555 cr to15551 cr. While for SCBs it increased from 6446cr to 20892 cr. The divergence in recovery owing to compromise write off between PSBs and SCBs increased significantly after 2009 implying that the recovery due to compromise write off in foreign banks and private banks increased significantly but the difference remains stable since 2009. D.2) Correlation analysis of reduction in NPA due to compromise/settlement write off between PSBs, SCBs Variable Compromise write off SCB Compromise write off PSB 0.8056 The correlation between recovery due to compromise write off PSB and compromise write off SCB is strong at 0.8056. D.3) Trend analysis of compromise write off ratio for the period between 2001-2012 Variables used-compromisewriteoffratio=Compromise write off PSB/Compromise write off SCB

Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Compromise write-off .86 .73 .81 .83 .74 .75 .79 .68 .43 .44 .74 .74 ratio The Compromise write-off ratio giving share of PSBs in SCBs in recovery due to compromise write off has been consistently falling from the period 2002 implying that the share of other component of SCBs i.e. foreign banks and private banks has been consistently rising. Recovery effort Compromise settlements Wherever feasible, in case of chronic NPAs, banks can consider entering into compromise settlements with the borrowers.

39

E) Impact of actual recovery, recovery due to up-gradation, recovery due to compromise settlement on NPA reduction for both PSBs, SCBs (2001-2012) PSB SCB Variables used AR_PSB,SCB=actual recovery in PSBs,SCBs, UPGD_PSB,SCB: recovery due to up-gradation in PSBs,SCBs COMP/WO_PSB, SCB=recovery due to compromise settlement, write off in PSB,SCB Regression analysis Null hypothesis(Ho): no impact of AR_PSB on NPA reduction_PSB NPAreduction_PSB=-4152.311 + 3.028154 AR_PSB 1 unit rise in AR_PSB leads to 3.028154 unit increase in NPAreduction_PSB R-squared = 0.8947 Adjusted R-squared = 0.8842 ANNOVA REGRESSION ANALYSIS
1) 1)

Regression analysis Null hypothesis(Ho): no impact of AR_SCB on NPA reduction_SCB NPA reduction_SCB=-7197.911 + 3.233139 AR_PSB 1 unit rise in AR_SCB leads to 3. 233139unit increase in NPAreduction_SCB R-squared = 0.8958 Adjusted R-squared = 0.8854 ANNOVA REGRESSION ANALYSIS NPA reduction_SCB AR_SCB Coefficient 3.233139 T value 9.27 P>|t| 0.000

NPA reduction_PSB AR_PSB

Coefficient 3.028154

T value 9.22

P>|t| 0.000

At 95 % Confidence Interval, the t value (table) at 5% level of Significance=2.20(at 5% level of significance, N=12, degrees of freedom=11), is much less than the observed t value=9.22 implying that null is rejected and so there is a significant impact of AR_PSB on NPA reduction_PSB

At 95 % Confidence Interval, the t value (table) at 5% level of Significance=2.20(at 5% level of significance, N=12, degrees of freedom=11), is much less than the observed t value=9.27 implying that null is rejected and so there is a significant impact of COMPWO_SCB on NPA reduction_SCB

2)

Null hypothesis(Ho): no impact of COMPWO_PSB on NPA reduction_PSB

2)

Null hypothesis(Ho): no impact of COMP/WO _SCB on NPA reduction_SCB

NPA reduction_PSB= -376.2395 + 2.626397 COMPWO_PSB 1 unit rise in COMPWO_PSB leads to 2.626397 unit increase in NPA reduction_PSB R-squared = 0.7706 Adjusted R-squared = 0.7477 ANNOVA REGRESSION ANALYSIS NPA reduction_PSB COMPWO_PSB Coefficient 2.626397 T value 5.80 P>|t| 0.000

NPA reduction_SCB= 142.8664+2.357996 COMP/WO_SCB 1 unit rise in COMPWO_SCBleads to 2.357996 unit increase in NPA reduction_SCB R-squared = 0.8703 Adjusted R-squared =0.8574 ANNOVA REGRESSION ANALYSIS NPA reduction_SCB COMPWO_SCB Coefficient 2.357996 T value 8.19 P>|t| 0.000

At 95 % Confidence Interval, the t value (table) at 5% level of Significance=2.20(at 5% level of significance, N=12, degrees of freedom=11), is much less than the observed t value=5.80 implying that null is rejected and so there is a significant impact of COMPWO_PSB on NPA reduction_PSB.

At 95 % Confidence Interval, the t value (table) at 5% level of Significance=2.20(at 5% level of significance, N=12, degrees of freedom=11), is much less than the observed t value=8.19 implying that null is rejected and so there is a significant impact of COMPWO_SCB on NPA reduction_SCB

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Null hypothesis(Ho): no impact of UPGD_PSB on NPA reduction_PSB NPA reduction_PSB=12257.05 +2.262439 UPGD_PSB 1 unit rise in UPGD _PSB leads to 2.262439 unit increase in NPA reduction_PSB R-squared = 0.9302 Adjusted R-squared = 0.9232 ANNOVA REGRESSION ANALYSIS
3)

Null hypothesis(Ho): no impact of UPGD_SCB on NPA reduction_SCB NPA reduction_SCB= 15621.53 + 2.66045 UPGD_SCB 1 unit rise in UPGD _SCB leads to 2.66045 unit increase in NPA reduction_SCB R-squared =0.9413 Adjusted R-squared =0.9355 ANNOVA REGRESSION ANALYSIS
3)

NPA reduction_PSB UPGD_PSB

Coefficient 2.262439

T value 11.54

P>|t| 0.000

NPA reduction_SCB UPGD_SCB

Coefficient 2.66045

T value 12.67

P>|t| 0.000

At 95 % Confidence Interval, the t value (table) at 5% level of Significance=2.20( 11 degrees of freedom, n=12), is much less than the observed t value=11.54 implying that null is rejected and so there is a significant impact of UPGD_PSB on NPA reduction_PSB
Source: RBI, MOF Reference: appendix, table no 1(NPA reduction), 9

At 95 % Confidence Interval, the t value (table) at 5% level of Significance=2.20( 11 degrees of freedom, n=12), is much less than the observed t value=12.67 implying that null is rejected and so there is a significant impact of UPGD_SCB on NPA reduction_SCB

41

Analysis 8: Trend, correlation, regression analysis of recovery due to up-gradation, compromise settlement & actual recovery on banks net profits. A) Trend, correlation, regression analysis of recovery due to up-gradation on bank net profits (2001-2012) PSB SCB Variables usedP_PSB, P_SCB=profits of banks(PSB, SCB) AR_PSB, AR_SCB =Actual recovery (PSB, SCB)

Correlation analysis Correlation P_PSB AR_PSB 0.8868 The correlation between P_PSB, AR_PSB is very strong & positive in PSBs. Regression study Null hypothesis(H0):There is no significant impact of actual recovery on the banks profitability P_PSB= -11832.31 +3.50 AR_PSB The 1 unit increase in AR_PSB leads to 3.50 unit increase in P_PSB. R-squared = 0.7891 Adj R-squared = 0.7680 ANNOVA REGRESSION ANALYSIS P_PSB AR_PSB coefficient T Std. error value .573 6.12 P>|t|

Correlation analysis Correlation P_SCB AR_SCB 0.9293 The correlation between P_SCB, AR_SCB is very strong & positive. Regression study Null hypothesis(H0):There is no significant impact of actual recovery on the banks profitability P_SCB= -25043.12 +4.67AR_SCB The 1 unit increase in AR_SCB leads to 4.67 unit increase in P_SCB. R-squared = 0.8655 Adj R-squared =0.8520 ANNOVA REGRESSION ANALYSIS P_SCB AR_SCB coefficient T Std. error value .582 8.02 P>|t|

3.505164

0.000

4.671915

0.000

The observed t value=6.12, is much higher than critical value of 2.20(at 5% level of significance, N=12, degrees of freedom=11), implying that we reject null hypothesis at 5% level of significance. So there is a significant impact of actual recovery on the banks profitability.
Source: RBI, MOF

The observed t value=8.02, is much higher than critical value of 2.20(at 5% level of significance, N=12, degrees of freedom=11), implying that we reject null hypothesis at 5%level of significance. So there is a significant impact of actual recovery on the banks profitability.

42

Reference: appendix, table no 9

B) Trend, correlation, regression analysis of recovery due to up-gradation on bank net profits (2001-2012) PSB SCB Variables used-P_PSB, P_SCB=profits of banks(PSB, SCB) UPGD_PSB, UPGD_SCB =Recovery due to upgradation(PSB, SCB)

Correlation UPGD_PSB

Correlation analysis P_PSB 0.8868

Correlation UPGD_SCB

Correlation analysis P_SCB 0.9293

The correlation between P_PSB, UPGD_PSB is very strong & positive in PSBs.

The correlation between P_SCB, UPGD_SCB is very strong & positive.

Regression study Null hypothesis(H0):There is no significant impact of upgradation of assets on the banks profitability P_PSB=10751.82 +2.608141 UPGD_PSB The 1 unit increase in UPGD_PSB leads to 2.608141 unit increase in P_PSB. R-squared = 0.7865 Adjusted R-squared = 0.7651 ANNOVA REGRESSION ANALYSIS P_PSB UPGD_PSB coefficient 2.608141 T value 6.07 P>|t| 0.000

Regression study Null hypothesis(H0):There is no significant impact of upgradation of assets on the banks profitability P_SCB=12416.9 +4.14139UPGD_SCB The 1 unit increase in UPGD_SCB leads to 4.14139 unit increase in P_SCB. R-squared = 0.8636 Adjusted R-squared =0.8499 ANNOVA REGRESSION ANALYSIS P_SCB UPGD_SCB coefficient 4.141392 T value 7.96 P>|t| 0.000

The observed t value=6.07, is much higher than critical value of 2.20(at 5% level of significance, N=12, degrees of freedom=11), implying that we reject null hypothesis at 5%level of significance. So there is a significant impact of upgradation of assets on the banks profitability.
Source: RBI, MOF Reference: appendix, table no 9

The observed t value=7.96, is much higher than critical value of 2.20(at 5% level of significance, N=12, degrees of freedom=11), implying that we reject null hypothesis at 5%level of significance. So there is a significant impact of up-gradation of assets on the banks profitability.

43

C) Trend, correlation, regression analysis of recovery due to compromise settlement on bank net profits (2001-2012) PSB SCB Variables used P_PSB-profits of PSBs, COMP/WO_PSB-recovery due to compromise write off in PSBs. P_SCBs-profits of SCBs, COMP/WO_SCB-recovery due to compromise write off in SCBs.

Correlation analysis Correlation P_PSB COMP/WO_PSB 0.6971 The correlation between COMP/WO_PSB, P_PSB is positive &strong. Regression study Null hypothesis(Ho): no significant impact of compromise settlement on PSB bank profits P_PSB =260.4813 + 2.6145 COMP/WO_PSB A 1 unit increase in COMP/WO_PSB leads to 2.6145 unit increase in P_PSB. R-squared = 0.4859 Adjusted R-squared = 0.4345 ANNOVA REGRESSION ANALYSIS P_PSB COMPWO_PSB coefficient 2.6145 T value 3.07 P>|t| 0.012

Correlation analysis correlation P_SCB COMP/WO_SCB 0.8737 The correlation between COMP/WO_SCB, P_SCB is positive & very strong. Regression study Null hypothesis(Ho): no significant impact of compromise settlement on SCB bank profits P_SCB =-10512.12 + 3.5891 COMP/WO_SCB A 1 unit increase in COMP/WO_SCB leads to unit 3.5891 increase in P_SCB. R-squared = 0.7634 Adjusted R-squared = 0.7397 ANNOVA REGRESSION ANALYSIS P_SCB COMPWO_SCB coefficient 3.5891 T value 5.68 P>|t| 0.000

The observed t value=3.07, is higher than critical value of 2.20(at 5% level of significance, 11 degrees of freedom, n=12), implying that we reject null hypothesis. So there is a significant impact of compromise settlement on PSB bank profits.
Source: RBI, MOF Reference: appendix, table no 9

The observed t value=5.68, is higher than critical value of 2.20(at 5% level of significance, 11 degrees of freedom, n=12), implying that we reject null hypothesis. So there is a significant impact of compromise settlement on SCB bank profits.

44

Analysis 9: Trend, correlation of restructuring of assets, regression analysis of Growth rate of restructuring (RSADV ratio) and growth rate of bank profits A) Trend analysis of restructuring assets, restructuring ratio(PSBs, SCBs) (2002-2013) PSB 1) Variables used RS_PSB,SCB= restructured advances of PSB, SCB GA_PSB,SCB= gross advances of PSB, SCB SCB

The growth rate in restructuring is positive over the years for both PSBs, and SCBs. 2) Variables used RS_PSB/RS_SCB= restructuring assets of PSB/ restructuring assets of SCBs. GA_PSB/GA_SCB=gross advances of PSBs/ gross advances of SCBs

The ratio of restructuring assets of PSBs to SCBs has been rising ever since 2002. While the ratio of gross advances of PSBs to SCBs has remained stagnant. 3) Variable usedRSratio_SCB= restructured advance ratio of SCBs,

RSratio_PSB= restructured advance ratio of PSBs.

45

The restructuring ratio has been rising over a period of time for both PSBs, SCBs. In the recent years the growth rate in restructuring ratio has increased and therefore is a cause of concern.
Source: RBI, MOF Reference: appendix, table no 10

B) Correlation analysis of restructuring of assets (2002-2013) Variables used GA_PSB, SCB= gross advances of PSBs, SCBs. RSratio PSB, SCB=restructuring ratio of PSBs, SCBs. RS_PSB,SCB=Restructuring assets of PSBs, SCBs. correlation GA_SCB GA_PSB 0.9997 correlation RSratio_PSB correlation RS_PSB RSratio_SCB 0.9762 RS_SCB 0.9997

The correlation in gross advances of PSBs & SCBs, restructuring ratio of PSBs & SCBs, restructuring assets PSB &restructuring assets SCB, is very strong.

46

C) Trend of Growth rate of restructuring (RSADV ratio) and growth rate of bank profits (2002-2013) PSB SCB

Correlation analysis Correlation Gr rate of resturcturing Gr rate of bank profits 0.1459 The correlation between growth rate of banks profits and growth rate of restructuring has a positive but very week correlation.
Source: RBI, MOF Reference: appendix, table no 11

Correlation analysis correlation Gr rate of resturcturing Gr rate of bank profits -0.1505 The correlation between growth rate of banks profits and growth rate of restructuring has a negative and very week correlation.

47

Analysis 10: Trend, correlation, regression analysis of recovery measures undertaken (LOK ADALAT, DRT, SARFAESI Act) and (NPA reduction, actual (cash) recovery) A) Trend analysis of recovery measures undertaken, NPA reduction, actual recovery (2004-2012) A1) Trend analysis of recovery due to SARFAESI Act, LOK ADALATS in PSBs. ( Recovery due to SARFAESI Act) PSB

(2004-2012)

The recovery due to SARFAESI has been rising ever since 2004 onwards. The actual (cash recovery) has not seen a very impressive rise over a period of time while the reduction in NPA has been steadily rising. ( Recovery due to LOK ADALAT) PSB (2006-2012)

The recovery due to LOK ADALAT has been stagnant implying this method of recovery has been ineffective in recovering NPAs.
Source: RBI, MOF Reference: appendix, table no 12

48

A2)Trend analysis of recovery due to DRT, LOK ADALAT in SCBs. (Recovery due to LOK ADALAT) SCB

(2004-2012)

The recovery due to LOK ADALAT has been stagnant from the period of analysis (2004-2012) for SCBs, and so in further regression analysis there is no significant impact of recovery due to LOK ADALAT on NPA reduction and actual recovery. (Recovery due to DRT) SCB (2004-2012)

The recovery due to DRT in SCBs has been stagnant throughout the period. The impact of recovery due to DRT on NPA reduction is seen to be insignificant and significant on actual recovery in further regression analysis done below.
Source: RBI, MOF Reference: appendix, table no 12

49

B) Correlation analysis of recovery measures undertaken with NPA reduction and actual recovery (2004-2012) PSB Variables used= AR_PSB= actual(cash) recovery in PSBs, NPAred_PSB=NPA reduction in PSBs, LOK ADALAT_PSB=recovery due to LOK ADALAT in PSB Correlation coefficient AR_PSB NPAred_PSB Correlation coefficient AR_PSB NPAred_PSB SARFAESI_PSB 0.6544 0.9336 LOK ADALAT_PSB 0.1515 0.2556 SCB Variables used= AR_SCB= actual(cash) recovery in SCBs, NPAred_SCB= NPA reduction in SCBs, LOK ADALAT_PSB=recovery due to LOK ADALAT in SCBs Correlation coefficient AR_SCB NPAred_SCB Correlation coefficient AR_SCB NPAred_SCB LokAdalat_SCB 0.2978 0.1038 DRT_SCB 0.6560 0.3933

C) Regression analysis of recovery measures undertaken with NPA reduction and actual recovery C.1) Impact of recovery due to SARFAESI Act on NPA reduction and actual recovery.(2004-2012) PSB NPA reduction Null hypothesis(Ho): no impact of recovery due to SARFAESI act on NPA reduction NPA reduction_PSB=14695 +2.834 SARFAESI act_PSB 1 unit rise in SARFAESI act recovery leads to 2.834 unit increase in NPA reduction_PSB R-squared = 0.8716 Adjusted R-squared = 0.8532 ANNOVA REGRESSION ANALYSIS NPA reduction_PSB SARFAESI act Coefficient 2.834 T value 6.89 P>|t| 0.00 Std error 0.41 Actual recovery Null hypothesis(Ho): no impact of recovery due to SARFAESI act on actual recovery Actual recovery_PSB=7632 +0.43 SARFAESI act_PSB 1 unit rise in SARFAESI act recovery leads to 0.43 unit increase in actual recovery_PSB R-squared =0.0229 Adj R-squared = -0.1725 ANNOVA REGRESSION ANALYSIS Actual recovery_PSB SARFAESI act Coefficient 0.43 T value 2.29 P>|t| 0.056 Std error 0.19

There is a significant impact of recovery due to SARFAESI Act on NPA reduction. The observed t value=6.89 is higher than critical value of 2.306(8 degrees of freedom) at 5% level of significance and so we reject our null hypothesis.

There is a significant impact of recovery due to SARFAESI Act on actual recovery. The observed t value=2.29 is higher than critical value of 1.86 (8 degrees of freedom) at 10% level of significance and so we reject our null hypothesis.

Source: RBI, MOF Reference: Appendix, table no 1(NPA reduction), 9(actual recovery), 12(recovery efforts)

50

C.2) Impact of recovery due to LOK ADALAT on NPA reduction and actual recovery.(2006-2012)(PSB) NPA reduction Regression analysis Null hypothesis(Ho): no impact of recovery due to LOK ADALAT on NPA reduction NPA reduction_PSB= 26953.6 +33.94 LOK ADALAT_PSB 1 unit rise in LOK ADALAT recovery leads to 33.94 unit increase in NPA reduction_PSB R-squared = 0.0653 Adj R-squared = -0.1216 ANNOVA REGRESSION ANALYSIS NPA reduction_ PSB LOK ADALAT Coefficient Std error 57.4 T value 0.59 P>|t| Actual recovery Regression analysis Null hypothesis(Ho): no impact of recovery due to LOK ADALAT on actual recovery Actual recoveryPSB=10370.3 + 2.96 LOK ADALAT _PSB 1 unit rise in LOK ADALAT recovery leads to 2.96 unit increase in actual recovery_PSB R-squared =0.4283 Adjusted R-squared = 0.346 ANNOVA REGRESSION ANALYSIS Actual recovery _PSB LOK ADALAT Coefficient Std error 8.65 T value 0.34 P>|t|

33.945

0.58

2.967

0.74

There is an insignificant impact of recovery due to LOK ADALAT on NPA reduction. The observed t value=0.59 is lower than critical value of 2.447 (6 degrees of freedom, n=7) at 5% level of significance and so we do not reject our null hypothesis.

There is an insignificant impact of recovery due to LOK ADALAT on actual recovery. The observed t value=0.34 is less than critical value of 2.447(6 degrees of freedom, n=7) at 5% level of significance and so we do not reject our null hypothesis.

Source: RBI, MOF Reference: Appendix, table no 1(NPA reduction), 9(actual recovery), 12(recovery efforts)

C.3) Impact of recovery due to DRT on NPA reduction and actual recovery (2004-2012) (SCB) NPA reduction Null hypothesis(Ho): no impact of recovery due to DRT on NPA reduction NPA reduction_SCB= 15065.84+7.016 DRT 1 unit rise in recovery due to LOK ADALAT leads 7.016 unit increase in NPA reduction_SCB R-squared = 0.154 Adjusted R-squared = 0.034 ANNOVA REGRESSION ANALYSIS NPA reduction DRT Coefficient 7.016 T value 1.13 P>|t| 0.295 Std error 6.198 Actual recovery Null hypothesis(Ho): no impact of recovery due to DRT on actual recovery Actual recovery_SCB= 4492.3+2.47 DRT 1 unit rise in recovery leads to 2.47 unit increase in actual recovery_SCB R-squared =0.4303 Adjusted R-squared =0. 3489 ANNOVA REGRESSION ANALYSIS Actual recovery DRT Coefficient 2.47 T value 2.30 P>|t| 0.55 Std error 1.07

There is an insignificant impact of recovery due to DRT on NPA reduction. The observed t value=1.13 is lower than critical value of 2.03(8 degrees of freedom) at 5% level of significance and so we reject our null hypothesis.

There is a significant impact of recovery due to DRT on actual recovery. The observed t value=2.30 is higher than critical value of 2.03(8 degrees of freedom) at 5% level of significance and so we reject our null hypothesis.

Source: RBI, MOF Reference: Appendix, table no 1(NPA reduction), 9(actual recovery), 12(recovery efforts)

51

C.4) Impact of recovery due to LOK ADALAT on NPA reduction and actual recovery.(2004-2012)(SCB) NPA reduction Null hypothesis(Ho): no impact of recovery due to Lok adalat on NPA reduction NPA reduction_SCB= 34945.08+25.46 Lok adalat 1 unit rise in recovery due to lok adalat leads to 25.46 unit increase in NPA reduction_SCB R-squared = 0.108 Adjusted R-squared = -0.13 ANNOVA REGRESSION ANALYSIS NPA reduction Lok adalat Coefficient 25.46 T value 0.28 P>|t| 0.79 Std error 92.1 Actual recovery Null hypothesis(Ho): no impact of recovery due to Lok adalat on actual recovery Actual recovery_SCB=10514.06+15.45 Lok adalat 1 unit rise in recovery leads to 15.45 unit increase in actual recovery_SCB R-squared =0.087 Adjusted R-squared = -0.415 ANNOVA REGRESSION ANALYSIS Actual recovery Lok adalat Coefficient 15.45 T value 0.83 P>|t| 0.43 Std error 18.73

There is an insignificant impact of recovery due to lok adalat on NPA reduction. The observed t value=0.28 is lower than critical value of 1.86(8 degrees of freedom) at 10% level of significance and so we reject our null hypothesis.

There is an insignificant impact of recovery due to lok adalat on actual recovery. The observed t value=0.83 is lower than critical value of 1.86(8 degrees of freedom) at 10% level of significance and so we reject our null hypothesis.

Source: RBI, MOF Reference: Appendix, table no 1(NPA reduction), 9(actual recovery), 12(recovery efforts)

Recovery efforts The provision amount progressively increases with increase in time, it is necessary to take steps to recover dues either through persuasion or by legal recourse. To improve the health of the financial sector, to reduce the NPAs, to improve asset quality of banks, and to prevent slippages, Reserve Bank of India (RBI) has issued instructions which stipulate that each bank is required to have a robust mechanism for early detection of signs of distress including prompt restructuring in the case of all viable accounts; to have a loan recovery policy which sets down the manner of recovery of dues, targeted level of reduction (period-wise), norms for permitted sacrifice/waiver, factors to be taken into account before considering waivers, decision levels, and reporting to higher authorities; monitoring of write-off/waiver cases; valuation of properties including collaterals accepted for their exposures; and taking recourse to legal mechanisms like SARFAESI Act, 2002, DRTs and LOK ADALATS.

52

lV) CONCLUSIONS FROM ABOVE GENERATED RESULTS i. ii. Analysis 1(a) shows that there is a significant positive impact of GDP (market, constant price) on NPA reduction for both PSBs and SCBs. Analysis 1(b) shows that there is a significant positive impact of foreign currency assets on NPA reduction for both PSBs and SCBs. Given other economically favorable conditions over a period of time, this indicator has an indirect but significant impact in NPA reduction. Analysis 1(c) shows that there is a significant positive impact of WPI on NPA reduction for both PSBs and SCBs. This can be attributed to the reason that as inflation rises, the increase in profitable margin of firms has been higher compared to their increase in costs and so the capacity to pay back borrowed amount has shown an improvement and thus reduction in NPA for both PSBs, SCBs. Analysis 1(d) shows that there is a significant negative impact of rate of interest on NPA reduction for both PSBs and SCBs. So higher the rate of interest charged, lower is the NPA reduction. Analysis 2 (a) shows that the trend of doubtful and sub standard assets have increased sharply for both PSBs and SCBs, while it remained stagnant for loss assets. Analysis 2 (b) shows the trend of gross advances of priority and non priority sector for PSBs, SCBs showing that there is a steady rise in gross advances of non priority sector since 2005. Analysis 2 (c) shows that the gross NPA of priority and non priority sector has increased for both PSBs, SCBs. In the recent years, the rise has been at a steeper rate for non-priority sector. Analysis 2 (d) shows that trend performance of NPA ratio of priority and non priority sector for PSB & SCBs depicting that the NPA ratio has seen a reduction over a period of time until recently it rose owing to steep rise in gross NPA growth rate. Analysis 3 (a) shows analysis of growth rate in gross NPA, gross NPA ratio & gross advances. The growth rate in gross NPA ratio and gross NPA has risen steadily in the recent past while for gross advances remained stagnant for both PSBs & SCBs. Analysis 3(b) shows significant negative impact of growth rate of gross NPA ratio on growth rate of gross advances for both PSBs and SCBs. Analysis 3(c) shows significant positive impact of growth rate of gross NPA on growth rate of gross NPA ratio for both PSBs and SCBs. Analysis 3(d) shows significant negative impact of growth rate of gross advances on growth rate of gross NPA ratio for both PSBs and SCBs. Analysis 4(a, b, c) shows trend of share of gross NPA of sector components of priority sector to priority sector for both PSBs and SCBs. From 2011 onwards the share of agriculture is maximum. While prior to that the share of OPS was highest. But for most of the period of analysis the share of SME sector has been the highest for PSBs. The same result holds for SCB. Analysis 4(d) shows trend of share of gross NPA of priority sector, non priority sector to total sector for both PSBs and SCBs. For the SCBs, the driver of gross NPA has been non priority sector except for 2007, 2008 period while for PSBs the driver of gross NPA has been priority sector from2006 onwards. Analysis 4(e, f) shows that the growth rate in gross NPA ratio for the priority sector has been influences by growth rate in gross NPA from 2010 onwards. While prior to 2008, the magnitude of growth rate of gross advances was higher than the growth rate of gross NPA for the priority sector for PSBs, SCBs. Analysis 5(b) shows that there is a significant negative impact of NPA ratio on banks (PSBs, SCBs) net profits. Analysis 5(c) shows that the NPA reduction has significant positive impact on banks (PSBs, SCBs) net profits. Analysis 6(a, b, c, d, e) shows a positive significant impact of gross advances on gross NPA of all the sectors for both PSBs, SCBs. Analysis 7(a1) depict the trend of NPA reduction showing that there has been a steady rise in NPA reduction for both PSBs, SCBs. Analysis 7 (a2) shows a strong correlation between reduction NPA and actual(cash) recovery, recovery due to up-gradation, recovery due to compromise settlement. Analysis 7(b1) shows that the trend performance of actual recovery has been rising for both PSBs, SCBs. Analysis b(2) shows the correlation between actual recovery in PSBs and SCBs is very strong.

iii.

iv. v. vi. vii. viii.

ix.

x. xi. xii. xiii.

xiv.

xv.

xvi. xvii. xviii. xix.

xx.

53

xxi.

xxii.

xxiii. xxiv.

xxv.

xxvi.

xxvii.

xxviii. xxix.

Analysis 7 (b3) shows ratio of actual recovery of PSBs to actual recovery of SCBs was maximum in 2008 implying maximum actual recovery in SCBs in 2008 came from PSBs. The ratio however, throughout the period is maintained at around 80%. An analysis 7(c) show that recovery due to compromise settlement has been rising steadily until it fell in 2013. There is a strong correlation between recovery in up-gradation in PSBs and SCBs. Also the up-gradation ratio of PSBs to SCBs is more than 80% in the recent years. Analysis 7(d) shows that recovery due to up-gradation has been rising steadily. There is a strong correlation between recovery in up-gradation in PSBs and SCBs. Also the up-gradation ratio of PSBs to SCBs is around 75% from 2011 onwards. Analysis 7 (e) shows that the impact of actual recovery, compromise settlement, up-gradation on NPA reduction for PSBs, SCBs is significantly positive. Analysis 8 shows that the correlation between actual recovery, compromise settlement, up-gradation on banks (PSBs, SCBs) profits is very high and positive and regression analysis gives the impact of actual recovery, compromise settlement, up-gradation on banks (PSBs, SCBs) profits is significant and positive. Analysis 9(a) shows that restructuring assets of PSB to SCBs ratio increased at an increasing rate in the past and has remained stagnant from the past 2-3 years which is a good sign for PSBs. However the ratio of gross advance of PSBs to SCBs remained stagnant at around 70% throughout the period. The restructuring advance ratio has seen a steady rise recently for both PSB, SCBs. Analysis 9 (b) shows that the correlation between gross advances of PSBs, SCBs, between restructuring ratio of PSBs and SCBs and between restructuring assets of PSBs and SCBs is positive and very strong. Analysis 10 shows (a1) that for PSBs the recovery due to SARFAESI has been steadily rising, while for LOK ADALATS, the result has not been impressive. Analysis 10 shows (a2) that for SCBs the recovery due to DRTs and LOK ADALATS, the result has not been impressive. Analysis 10 (b) shows that the correlation between actual recovery, reduction in NPA with recovery due to SARFAESI Act is very strong while with DRTs and LOK ADALATS is vey week. Analysis 10(c) regression analysis shows that the impact of recovery due to SARFAESI Act is significant in both NPA reduction and actual recovery (analysis being made for PSBs), recovery impact of DRTs is insignificant on NPA reduction and slightly significant on actual recovery. (This analysis is made for SCBs). While the impact of LOK ADALAT in both NPA reduction and actual recovery is insignificant in both PSBs and SCBs proving it to be most ineffective measure in recovering non- performing assets.

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V) OTHER MEASURES TO REDUCE NPA A) Altmans Z score A.1) Can banks use Altmans Z score to detect financial position of companies in addition to credit rating to judge their financial position in deciding whom to lend whom not to lend? In India, banks use credit rating of companies/firms which is based on their past record to judge their financial position. While in most of the countries, in addition to credit rating Al tmans Z score is also used to analysis credit worthiness of the companies. The Z score formula may be used to predict the probability that a firm will go into bankruptcy within two years. Z-scores are used to predict corporate defaults and an easy-to-calculate control measure for the financial distress status of companies in academic studies. It uses multiple corporate income and balance sheet values to measure the financial health of a company. A.2) Brief on Altmans Z score The Altman Z-score is a combination of five weighted business ratios that is used to estimate the likelihood of financial distress. If the credit crunch itself wasnt lesson enough, respected fund manager Anthony Bolton has emphasized the importance of understanding credit risk when investing in equities The original research was based on data from publicly held manufacturers (66 firms, half of which had filed for bankruptcy). Altman calculated 22 common financial ratios for all of them and then used multiple discriminant analysis to choose a small number of those ratios that could best distinguish between a bankrupt firm and a healthy one. To test the model, Altman then calculated the Z Scores for new groups of bankrupt and non bankrupt but sick firms (i.e. with reported deficits) in order to discover how well the Z Score model could distinguish between sick firms and the terminally ill. His original Z-score formula was as follows: Z = 1.2T1 + 1.4T2 + 3.3T3 + 0.6T4 + 0.999T5. T1 = Working Capital / Total Assets. It measures liquid assets in relation to the size of the company. T2 = Retained Earnings / Total Assets. It measures profitability that reflects the company's age and earning power. T3 = Earnings before Interest and Taxes / Total Assets. It measures operating efficiency apart from tax and leveraging factors. It recognizes operating earnings as being important to long-term viability. T4 = Market Value of Equity / Book Value of Total Liabilities. It adds market dimension that can show up security price fluctuation as a possible red flag. T5 = Sales/ Total Assets. Standard measure for total asset turnover (varies greatly from industry to industry). Altman found that the ratio profile for the bankrupt group fell at -0.25 avg, and for the non-bankrupt group at +4.48 avg. The results indicated that, if the Altman Z-Score is close to or below 3, it is wise to do some serious due diligence before considering investing. The Z-score results usually have the following "Zones" of interpretation: 1. Z Score above 2.99 -Safe Zones. The company is considered Safe based on the financial figures only. 2. 1.8 < Z < 2.99 -Grey Zones. There is a good chance of the company going bankrupt within the next 2 years of operations. 3. Z below 1.80 -Distress Zones. The score indicates a high probability of distress within this time period. The Z-score has subsequently been re-estimated based on other datasets for private manufacturing companies, as well as non-manufacturing / service companies.

55

A.3) Application of Z score in Indian context Some of the slight modifications can be made in the Z score based on the easy availability of the data on all the variables. The following discussed are the areas where some modifications can be made. i) The data on market value of equity is not normally calculated in India, ii) A clear specification should be made about the retained earnings and rate of interest to be taken while computing earnings before interest and taxes. If the expected defaults/financial distress of firms are tested on time then a productive outcome in terms of asset quality can be achieved in all the banks. iii) If a firm is not publicly traded, its equity has no market value. To deal with this, there is a revised Z score for private companies: - Z1 = .717*T1 + .847*T2 + 3.107*T3 + .42*T4A + .998*T5 (in this case, T4 = Book Value of Equity / Total Liabilities). iv) The other ratio is Asset Turnover. This ratio varies significantly by industry but, because of the original sample, the Z Score expects a value that is common to manufacturing. To deal with this, there is a more general revised Zscore for non-manufacturing businesses: - Z2 = 6.56*T1 + 3.26*T2 + 6.72*T3 + 1.05*T4A. One option is to use Standard Industrial Classification (SIC) codes to class and categorize a company as manufacturing or nonmanufacturing. Companies in SIC codes 2000-3990 might be considered manufacturing companies.

B) Credit rating As per mandatory guidelines of the RBI, banks are required to consider credit rating of borrower companies borrowing more than 5 crores. However for SMEs, the minimum threshold is 1 crore above which the lending decision is dependent on the credit rating. Normally, top 6 rating (A+, A, A-, B+, B, B-) is considered safe for lending by banks. Only when there are sovereign bonds backing as security for firms whose credit rating is C+, banks considers to lend, otherwise not. There is a need for universalization of credit rating system. The assessment of a company by different banks should not vary. At least, the category of rating (for eg- A, B,C) should be same for a company. An acceptable level of deviation of rating (say +-1%) must be set at a universal level to channelize efficiency in the system. So a robust mechanism is needed to implement amendments in credit rating approach in a simplified manner such that the deviations of rating are minimized to a lowest level, if not eliminated.

56

VI) RECOMMENDATIONS 1. If SARFAESI Act can recover NPAs at a fast rate, other measures (LOK ADALATS, DRTs) can also do so . There is a need to create a conducive environment in LOK ADALAT, the impact of whose recovery efforts in reducing NPA has been negligible. The appraisal system need to be strengthened to a large extend. The overall impact of DRTs being insignificant in NPA reduction implies that this area also need to be focused upon. If DRTs can function effectively at one place, then in other places as well they can work effectively. The need therefore, is to impose strict rules to improve recovery of NPA as effectively as possible from all measures. A mechanism needs to be developed such that strict actions are taken against banks wherever the recovery appraisal system is not working efficiently. A strategy of fixing a dead line for recovery may force the bank to either recover or shed the asset off the balance sheet. Banks may file suits promptly against willful defaulters. Banks can take recourse under either a civil suit or the Special Recovery Acts passed by various states or the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002. The bank should vigorously follow up the legal cases. 2. There is a need to introduce Z score in India to efficiently measure the financial position and improve the system of credit rating approach to judge the credit worthiness of borrowers in a more efficient manner. There is a need to understand factors because of which the appraisal system is very strong in other institutions and implement them for public sector banks. For example- The recovery rate is 99% + and the NPA ratio is around 1% to 1.5% in micro finance institutes (MFIs). Some of the factors for such an efficient recovery system are- there are personal meets with the borrowers on daily basis. As the no of document required for borrowing funds is minimum, and so there is a drive in these institutes to prevent an asset from becoming NPA. However in public sector banks, there is a huge documents fulfillment requirement because of which banks become lethargic in keeping a strict a strict vigilance over them. Secondly the manpower strength is very high in MFIs as compared to PSBs. A good strength of man power can indeed help in sound appraisal system as the delegation of work efficiently leads to a productive outcome. Despite the fact that MFIs lend to borrowers borrowing even for unproductive purpose ( social events), their recovery process is amazing and so there is a lot to learn to boost recovery to a highest possible level.

3.

57

VII)APPENDIX(Tables) Table no 1 (macroeconomic indicators, NPA reduction) (2001-2012) foreign currency assets 1863.44 2493.28 3379.68 4691.04 5917.69 6473.27 8365.97 11995.79 12210.3 11498.51 12279.6 13305.1 NPA reduction_PSB 13629 14058 18729 20706 21317 23104 22267 22703 26718 29934 42996 49998 NPA reduction_SCB 16411 17636 23182 28076 27737 28980 27317 28612 40356 49788 56330 62603 WPI 160.65 164.675 173.44167 184.9 193.66667 203.01667 212.8 232.175 237.13333 Repo rate 9 8 7.1 6 6.25 6.5 -

YEAR 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

GDP_mkt price 25540.04 26802.8 27850.13 30062.54 32422.09 35432.44 38714.89 42509.47 44163.5 47801.79 52368.23 55958.56

Table no2 (asset classification PSBs, SCBs) (1997-2013) PSB YEAR 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 sub standard 12487 14010 15458 16014 14426 14802 14682 16141 11084 11394 13944 16846 19521 27685 33612 60376 79434 doubtful 24053 24385 26930 29152 32925 33121 31781 28565 30219 24804 19886 19083 20708 24679 31955 47075 68947 loss 4181 4724 4847 5384 5922 6535 6343 5442 5514 5180 4475 3672 3803 4928 5514 5037 5361 YEAR 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 sub standard 14237 16928 19321 19340 17894 20461 19843 20267 14073 14737 19679 26089 35922 41293 39877 67587 88113 SCB doubtful 25054 25708 28977 32355 37338 42374 41688 36073 36955 29940 24447 24304 26730 32664 44804 59623 82958 loss 4717 5563 5858 6494 7439 8278 8511 7197 6996 6566 5870 5302 5564 7851 9440 9892 10684

58

Table no 3(gross advance of PSBs, SCBs)(1997-2013) Variables GA_PS_PSB= gross advances of priority sector in PSBs, GA_NPS_PSB= gross advances of non-priority sector in PSBs, GA_PS_SCB= gross advances of priority sector in SCBs, GA_NPS_SCB= gross advances of non-priority sector in SCBs, PS_PSB/PS_SCB= GA_PS_PSB / GA_PS_SCB NPS_PSB/NPS_SCB= GA_NPS_PSB / GA_NPS_SCB. YEAR GA_PS_PSB GA_NPS_PSB GA_PS_SCB GA_NPS_SCB PS_PSB/PS_SCB 1997 76732.83 145935 87537 192002 0.876576 1998 90268.32 169033 102773 224022 0.878327 1999 104710.2 189924 120050 250092 0.872222 2000 128774 220394 149031 295188 0.864075 2001 140170.9 266303 163394 358970 0.857871 2002 161185.6 309262 187485 458381 0.859725 2003 190422.4 346595 227747 511377 0.836114 2004 232456.8 388038 285935 573158 0.812971 2005 299072.7 518175 371004 754051 0.806117 2006 397050.8 673821 505296 968427 0.785779 2007 502239.3 871538 651959 1241816 0.770354 2008 597692.8 1098358 780337 1551413 0.765942 2009 699057.3 1399576 909371 1879053 0.768726 2010 852210.3 1660147 1086278 2178629 0.784523 2011 1031989 2027882 1310340 2681805 0.787573 2012 1139043 2411346 1463441 3202897 0.778332 2013 1260127 2783926 1647748 3712568 0.764757

NPS_PSB/NPS_SCB 0.76007 0.754538 0.759417 0.746622 0.741853 0.674683 0.677768 0.677018 0.687188 0.695789 0.701825 0.707973 0.744831 0.762015 0.756163 0.752864 0.749865

Table no 4 (gross advances, NPA ratio of PSBs, SCBs) (1997-2013) PSB Priority sector Gross NPA NPA ratio 20237 26.37 21084 22199 23003 2000 24156 2001 25150 2002 24938 2003 13.09 10.25 27868 8.040 2003 15.60 29308 9.47 2002 27534 12 17.23 29117 10.93 2001 27997 15 42508 8.31 23.35 21.20 17.86 Non Priority sector Gross NPA ratio NPA 20440 14.00 22132 24984 27566 12.50 2000 26238 16 43117 9.40 13.09 13.15 SCB Priority sector Gross NPA NPA ratio 21174 24 22255 23655 24752 17 36659 10.29 22 20 Non Priority sector NPA Gross NPA ratio 22798 11.87 26051 30426 33468 11.33 11.62 12.16

YEAR 1997 1998 1999

YEAR 1997 1998 1999

23840
2004

26308
6.77 2004

26481
9

37056
6.46

59

23397 2005 22374 2006 22954 2007 25287 2008 24168 2009 30846 2010 41287 2011 56201 2012 68242 2013

7.82 5.63 4.57 4.23 3.45 3.61 4.00 4.93 5.41

23420 4.51 19004 2.82 15351 1.76 14314 1.30 19864 1.41 26447 1.59 29793 1.46 56288 2.33 85501 3.07 2013 2012 2011 2010 2009 2008 2007 2006 2005

25798 7 24893 5 26035 4 29039 4 28343 3 36364 3 46927 4 62085 4 74614 5

32226 4.21 26350 2.73 23962 1.92 26656 1.76 39872 2.12 45444 2.08 47194 1.74 75017 2.34 107141 2.84

Table 5 (sector wise growth rate in GNPA, GA, P,NPA ratio)(1997-2013) PSB SCB Variables usedG_R-> growth rate,GA->gross advances, GNPA->gross NPA, P->banksprofits

YEAR 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

G_R GA 16.5 13.6 18.5 16.4 15.7 14.2 15.5 31.7 31.0 28.3 23.5 23.7 19.7 21.8 16.0 13.9

G_R GNPA 6.23869 9.180314 7.176944 5.348621 2.223489 -3.0337 -5.03275 -6.64277 -11.6172 -7.4277 3.381928 11.19092 30.11645 24.06548 58.25587 36.67343

GR_NPA ratio -8.77055 -3.91246 -9.56222 -9.50377 -11.6773 -15.054 -17.8089 -29.1187 -32.5497 -27.8391 -16.2621 -10.1389 8.689402 1.866037 36.39138 19.9895

GR_P 55.4 -40.3 61.7 -16.5 99.9 51.2 35.9 -9.3 8.4 20.9 34.0 27.4 11.0 14.4 7.8 3.4

YEAR 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

G_R GA 16.9 13.3 20.0 17.6 23.6 14.4 16.2 31.0 31.0 28.5 23.1 19.6 17.1 22.3 16.9 14.9

G_R GNPA 9.856297 11.95445 7.654042 8.032056 13.06373 -1.50581 -9.28692 -8.6772 -11.687 -2.43187 11.39805 22.47965 19.92502 15.05127 45.66595 32.56923

GR_NPA ratio -6.02925 -1.15667 -10.298 -8.12947 -8.55599 -13.9334 -21.9545 -30.2659 -32.5809 -24.0731 -9.52595 2.420544 2.423065 -5.9073 24.62013 15.40604

GR_P 36.9 -34.0 60.1 -12.7 83.1 50.0 31.4 -7.0 16.5 24.4 39.0 23.3 4.3 23.6 14.6 13.2

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Table no 6(banks profits, NPA ratio)(1997-2013) PSB banks profitability PSB 3129 4863 2901 4692 3920 7835 11846 16101 14609 15838 19144 25646 32669 36262 41492 44713 46247 SCB banks profitability SCB 4784 6548 4324 6924 6045 11070 16600 21809 20288 23643 29419 40905 50449 52638 65047 74540 84388

YEAR 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

NPA ratio PSB 18.3 16.7 16.0 14.5 13.1 11.6 9.8 8.1 5.7 3.9 2.8 2.3 2.1 2.3 2.3 3.2 3.8

YEAR 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

NPA ratio SCB 15.7 14.8 14.6 13.1 12.0 11.0 9.5 7.4 5.2 3.5 2.6 2.4 2.4 2.5 2.4 2.9 3.4

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Table no 7(gross NPA of PSBs, SCBs) (1997 -2013) PSB Other Priority Sector 5100 5715 5624 6025 6440 6736 7069 7762 8308 9253 10604 11214 11476 10979 12417 16096 12805 Priority SectorTotal 20237 21084 22199 23003 24156 25150 24938 23840 23397 22374 22954 25287 24168 30846 41287 56201 68242 NonPriority Sector 20440 22132 1999 7081 2000 7102 2001 7377 2002 7926 2003 7707 2004 7240 2005 7254 2006 6203 2007 6506 2008 8268 2009 5708 2010 8330 2011 14488 2012 22662 2013 28604 26832 85501 17442 56288 2013 30786 29078 14749 74614 107141 14383 29793 2012 24827 19526 17732 62085 75017 11537 26447 2011 16661 16034 14232 46927 47194 6984 19864 2010 10354 12975 13035 36364 45444 5805 14314 2009 7154 7870 13319 28343 39872 5843 15351 2008 9736 6521 12782 29039 26656 6917 19004 2007 7367 6542 12126 26035 23962 7835 23420 2006 6718 7781 10394 24893 26350 8838 26308 2005 7726 8884 9189 25798 32226 10162 27868 2004 7721 10221 8539 26481 37056 10489 29308 2003 8245 11555 7735 27534 42508 10339 29117 2002 8459 12111 7426 27997 43117 9876 27566 2001 7699 11467 7071 26238 36659 9494 24984 2000 7438 10736 6578 24752 33468 7310 10287 6058 23655 30426 SCB Other Priority Sector 5344 6091 Priority SectorTotal 21174 22255 NonPriority Sector 22798 26051

Year 1997 1998 1999

Agri Sector 7153 6732

SSI/MSE Sector 7984 8637

Year 1997 1998

Agri Sector 7342 6925

SSI/MSE Sector 8488 9239

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Table no 8 (sector wise gross advances of PSBs, SCBs)(1997-2013) PSB Year 1997 1998 1999 2000 2001 2002 2003 2004
2005 2006 2007 2008 2009 2010 2011 2012 2013

SCB PS 76733 90268 104710 128774 140171 161186 190422 232457

299073 397051 502239 597693 699057 852210 1031989 1139043 1260126

Agri 29096 33476 36093 44856 47570 55287 64008 76072

102845 140895 186459 223801 273726 347112 416047 472447 524007

SSI/MSE 30905 37912 42214 45829 48300 50530 53202 60066

67371 82210 103260 140641 176392 240819 352693 358357 461057

OPS 16732 18881 26403 38088 44300 55368 73213 96319

128857 173946 212520 233251 248939 264279 263248 308239 275062

NPS 145935 169033 189924 220394 266303 309262 346595 388038

518175 673821 871538 1098358 1399576 1660147 2027882 2411346 2783926

Year 1997 1998 1999 2000 2001 2002 2003 2004

2005 2006 2007 2008 2009 2010 2011 2012 2013

Agri 30863 35690 38489 48290 51583 59767 71925 87895

119011 172208 231220 273234 340367 427271 504975 574890 636733

SSI/MSE 37262 45190 50516 55304 58075 60395 62157 69845

78881 96623 124704 189729 232526 313096 448375 482304 603959

OPS 19412 21892 31045 45436 53737 67323 93666 128195

173112 236466 296035 317373 336478 345911 356968 406247 407056

PS 87537 102773 120050 149031 163394 187485 227747 285935

371004 505296 651959 780337 909371 1086278 1310340 1463441 1647748

NPS 192002 224022 250092 295188 358970 458381 511377 573158

754051 968427 1241816 1551413 1879053 2178629 2681805 3202897 3712568

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Table (Sector wise NPA ratio of PSBs, SCBs) (1997 to 2013) PSB SCB

YEAR 1997

Agri

SSI/MSE

OPS

PS

NPS

YEAR 1997

Agri

SSI/MSE

OPS

PS

NPS

24.6 1998 20.1 1999 19.6 2000 15.8 2001 15.5 2002 14.3 2003 12.0 2004 9.5 2005 7.1 2006 4.4 2007 3.5 2008 3.7 2009 2.1 2010 2.4 2011 3.5 2012 4.8 2013 5.5

25.8 22.8 22.5 21.6 21.4 20.8 19.1 14.7 11.6 8.4 5.7 4.1 4.0 4.8 4.1 4.9 5.8

30.5 30.3 21.3 15.8 14.5 12.2 9.7 8.1 6.4 5.3 5.0 4.8 4.6 4.2 4.7 5.2 4.7

26.4 23.4 21.2 17.9 17.2 15.6 13.1 10.3 7.8 5.6 4.6 4.2 3.5 3.6 4.0 4.9 5.4

14.0 1998 13.1 1999 13.2 2000 12.5 2001 10.9 2002 9.5 2003 8.0 2004 6.8 2005 4.5 2006 2.8 2007 1.8 2008 1.3 2009 1.4 2010 1.6 2011 1.5 2012 2.3 2013 3.1

23.8 19.4 19.0 15.4 14.9 14.2 11.5 8.8 6.5 3.9 3.2 3.6 2.1 2.4 3.3 4.3 4.8

22.8 20.4 20.4 19.4 19.7 20.1 18.6 14.6 11.3 8.1 5.2 3.4 3.4 4.1 3.6 4.0 4.8

27.5 27.8 19.5 14.5 13.2 11.0 8.3 6.7 5.3 4.4 4.1 4.0 4.0 3.8 4.0 4.4 3.6

24.2 21.7 19.7 16.6 16.1 14.9 12.1 9.3 7.0 4.9 4.0 3.7 3.1 3.3 3.6 4.2 4.5

11.9 11.6 12.2 11.3 10.2 9.4 8.3 6.5 4.3 2.7 1.9 1.7 2.1 2.1 1.8 2.3 2.9

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Table no 9(banks profits, recovery measures)(2001-2012) PSB SCB Variables used P_PSB, P_SCB =profits of banks(PSB, SCB), UPGD_PSB, UPGD_SCB =Recovery due to up-gradation(PSB, SCB), COMP/WO_PSB, COMP/WO_SCB =recovery due to compromise write-off (PSB, SCB), AR_PSB,SCB=actual recovery( PSBs, SCBs) Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 UPGD_PSB 1896 1824 3036 2469 3856 3787 3508 4439 8401 8838 11081 17176 C_WO 5555 6428 9448 11309 8048 8799 9188 8018 6966 11185 17794 15551 P_PSB 3920 7835 11846 16101 14609 15838 19144 25646 32669 36262 41492 44713 AR_PSB 6178 5806 6245 6928 9413 10518 9571 10246 11351 9911 14121 17271 Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 UPGD_SCB 2070 2114 3619 3451 4206 4398 3972 4989 9607 10623 13620 19862 C_WO 6446 8710 11620 13560 10822 11657 11620 11653 15995 25019 23895 20892 P_SCB 6045 11070 16600 21809 20288 23643 29419 40905 50449 52638 65047 74540 AR_SCB 7895 6812 7943 11065 12709 12925 11725 11970 14754 14146 18815 21849

Table no 10 (restructuring assets, ratios, advances)(2002-13) Variables used RS_SCB, PSB= restructuring assets of PSB, SCBs. GA_SCB, PSB= gross advances of PSBs, SCBs. RS_(PSB/SCB)= restructuring assets of PSB/ restructuring assets of SCB, GA_(PSB/SCB)= gross advances of PSBs/ gross advances of SCBs, RR_PSB= restructuring ratio of PSB, RR_SCB= restructuring ratio of SCBs. YEAR 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 RS_SCB 9820 18226 17774 25329 17873 20090 26642 75199 139488 139168 218963 307554 GA_SCB 645865 739125 859092 1125056 1473723 1893775 2331750 2788424 3264907 3992145 4666337 5360760 RS_PSB 4212 7363 9276 18111 11893 14658 19739 62350 126224 129810 203637 283795 GA_PSB 470447 537018 620494 817248 1070872 1373777 1696051 2098633 2512358 3059870 3550389 4044052 RS_(PSB/SCB) 0.428966 0.403977 0.521887 0.715036 0.665396 0.729598 0.740882 0.829135 0.90491 0.932758 0.930008 0.922749 GA_(PSB/SCB) 0.728399 0.726559 0.722268 0.726407 0.726644 0.725417 0.727372 0.752623 0.769504 0.766473 0.760851 0.75438 RR_PSB 0.015204 0.024659 0.020689 0.022514 0.012128 0.010608 0.011426 0.026968 0.042723 0.03486 0.046924 0.057371 RR_SCB 0.008954 0.013711 0.014949 0.022161 0.011106 0.01067 0.011638 0.02971 0.050241 0.042423 0.057356 0.070176

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Table no 11(growth rate of restructuring ratio & banks profits) PSB SCB Variables used GR_RSADV ratio- growth rate in restructured advances as percentage of gross advances GR_P- growth rate in banks profits Year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 GR_RSADVratio 0.9 1.4 1.5 2.2 1.1 1.1 1.2 3.0 5.0 4.2 5.7 GR_P 51.2 35.9 -9.3 8.4 20.9 34.0 27.4 11.0 14.4 7.8 3.4 Year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 RSADVratioSCB 0.011 0.019109 0.022418 0.019452 0.020905 0.01074 0.010394 0.012582 0.032777 0.029278 0.032424 GR_P 50.0 31.4 -7.0 16.5 24.4 39.0 23.3 4.3 23.6 14.6 13.2

Table no 12 (recovery due to various recovery efforts (2004-2012) Variable used LOK ADALAT= recovery due to LOK ADALAT, DRT= recovery due to DRT, SARFAESI= recovery due to SARFAESI, AR=actual recovery Lok Lok YEAR Adalat_SCB DRT_SCB SARFAESI_PSB Adalat_PSB AR_SCB AR_PSB 2004 149 2117 1156 7943 6245 2005 113 2688 2391 11065 6928 2006 265 4735 3363 253.8 12709 9413 2007 106 3463 3749 84.53 12925 10518 2008 176 3020 4429 119.15 11725 9571 2009 96 3348 3982 8.76 11970 10246 2010 112 3133 4269 62.69 14754 11351 2011 151 3930 11561 125.1 14146 9911 2012 218 4097 10082 201.61 18815 14121

66