NPA MANAGEMENT IN INDIAN BANKS: AN ENDLESS BATTLE

Abstract
Indian banks are undergoing with the rapid expansion by utilization of technology and also
strengthening several financial reforms and monetary policies which helps in development of the economy.
But the current scenario of Indian banks are become so absurd in managing the uncontrollable situation
over the rising NPA’s in every sectors of the Indian banks due to inefficiency of banks, bad lending practices
and for many other reasons NPA’s are close to peaking in which gross nonperforming assets as a percentage
of total loans fell 137 basis points to 22.73% from 24.10% and net nonperforming assets fell by 132 basis
points sequentially at 15.17%. In present, banking industry has took a responsibility by introducing many
strategies and managing tools to control and recover Nonperforming assets particularly huge control over
public sector banks which has a big amount of NPA background. This paper extracts the problems which
are facing by Indian banks and managing tools which helps to recover and control nonperforming assets by
analyzing private and public sector banks gross and net NPA by doing comparative analysis of past years
data. The findings revealed the various managing tools and status of the Indian banks and the inefficiency
of public sector banks which is the major reason for the resilience of Indian banking towards financial crisis.
Key Words: Indian banks, NPA management and Endless battle.

Introduction
International Scenario
National Scenario
Current Scenario
Impact of NPA
Determinants of NPAs

Literature review

Banking sector is mainstay of a country which directly influences the development of our economy
and provides pliability against financial crisis. Banks are undergone by their certain functions and
responsibilities the primary function of banks is to lend funds as loans to various sectors such as industry,
agriculture, personal loans, housing, education, vehicle and other loans.
A major threat to banking sector is ubiquity of Non-Performing Assets. These reflect the performance
of banks and represent bad loans which means any asset which stops giving returns to its investors for a
specified period of time is known as Non-Performing Asset. NPA is a loan or an advance where:
 Interest or Installment of principal remain overdue for a period of more than 90 days in
respect of Term loan.
 The account remains ‘out of order’ in respect of an overdraft or cash credit
 In case of bill purchased and discounted that bill remains overdue for a period of more than
90 days
Non-Performing Assets affect operational productivity which directly influences the profitability of
banks and also liquidity and solvency position of existing banks. If NPA is not managed properly leads to
banking failures.
Nonperforming assets consists of two terms in its calculation Gross NPA and Net NPA. Gross NPAs
are sum total of all loans that are differentiated as NPAs as on balance sheet. It considers all non-standard
assets like substandard, doubtful and loss assets. Net NPAS are those type of NPAs in which the bank has
deducted the provision regarding NPAs. It shows the actual burden of banks.
 Gross NPAs Ratio = Gross NPAs / Gross Advances
Net NPAs = Gross NPAs – Provisions / Gross Advances – Provisions
NPA categories are substandard Assets which remains as NPAs for less than or equal to 12months,
doubtful assets which remained in the above category for 12months and the loss assets where loss has
been detected by bank.
The essential components of sound NPA management are:
 Recognition of Non-Performing Assets
 Regulation at a minimum level
 Safeguard Minimum Impact of NPA on the financials.
More than 4/5th of NPA were in public sector banks where NPA reached almost 12%. The increase
in NPA and provisioning cost there is a net loss of Rs 40000 crore in financial year 2018.
According to Reserve Bank of India published last year the NPA of private sector banks was
Rs.1.03 lakh crore by the end of September 2017. The public sector banks have higher NPA why
because they account for about 87% of total assets of banking system. Gross NPA of all banks in the
country amounted to Rs8,40958 crore led by industry loans followed by services and other sectors of
the economy.
As per march 2018 GNP of scheduled commercial banks due to loans for:
 Industry : Rs 6,0922 crore at 20.47%
 Service sector : Rs 1,10520crore at 5.77%
 Agriculture and allied activities: Rs 69600crore at 6.53%
 Retail loans: Rs 36,630 crore at 2.01%
Reasons for the existence of NPA

 Bad lending practices: the refund of loan depends upon the burrowers. Bank doesn’t ensure about
borrower’s integrity and capacity while lending the money to various people and institutions this
leads to NPA for the banks
 Deliberate defaulters: Burrowers intentionally withdraw to pay back loans
 Problem of recovery tribunals: Tribunals are set up by the government which works for recovery of
loans and advances because of the negligence and inefficient management of tribunals leads to NPA
existence in banks.
 Change in government policies and procedures: Every new government can make banking sector to
get new policies for its operation which has to cope with changing principles and policies of rising
NPA’s
 Due to diversification of funds: This can leads for recessionary trends and failure to make required
funds capital and debt market
 Inefficient management: Due to managerial deficiencies banker can lend a money to the burrower
without any investigation which leads to customer misfortune and NPA
 Competition: This is a one of a cause for NPA existence in various banks or sectors for example as
per current scenario telecom industry has become a competition for many sectors which leads to
non-performing assets in the sectors.
 Economic slowdown: Due to recession in the economy and changing regulations leads for NPA
 Lack of proper planning: Absence of proper follow up action by banks and also lack of control on
loan documentation without proper plan and co-ordination leads to NPA in banks
 Imbalance of Inventories: shortage of power, inputs and other requirements in banks leads to
imbalance of inventories
 Natural Disasters: Due to calamities which often happen in India make burrowers unable to pay
back there loans on a specified time
 Burden of heavy borrowings

LITERATURE REVIEW
GOYAL KANIKA(2010) in his research paper “Study of Non-Performing Assets management of
Indian public-sector banks” identified the prominent role of Indian public sector banks by making the
descriptive research on the Non-Performing Assets. According to author NPA is influenced by the
agricultural sector in the large extent and by reviewing the asset quality and their absolute terms. Author
implemented the research methodology to measure NPA by analyzing the statistical tools like correlation,
regression, one way ANOVA and other procedures. This study also helps to improvise the asset quality of
public sector banks and pressurizes banks to improve efficiency and trim down Non-Performing Assets
also improvise financial health in the banking system. This study concludes the effective management of
asset quality in a public sector banks and a factors which influence increase in gross and net NPA in absolute
terms because of the increasing rate of stressed assets in the every Indian banks which accounting a huge
loss for banking sector.
SIRAJ AND P. SUNDARSANAN PILLAI (2013) In his paper titled “efficiency of npa management in
Indian scb’sz” he presented based on the research conducted on efficiency of bank and asset quality by
making exploratory research in a group wise with the main objective of identifying the relative efficiency
of various sectors of banks and also to know about the factors which are influencing NPA in banks. Author
methodology of estimating the NPA by using exponential growth equation and by using various statistical
tools such as data envelopment analysis, compound annual growth rate and also by comparing banking
performance indicators. This paper concluded as it interprets the improved performance of public sector
banks in India by increased growth of provisions and exponential growth in both private and foreign sector
banks.
SELVARAJAN AND DR. G. VADIVALAGAN (2013) in his article “A Study On Management Of
Npa In Priority Sector Reference To Indian Banks And Public Sector Banks” he studied about Non
Performing Asset which exist in the entire banking industry. This research studies the Indian bank
successful and effective management of NPAs. The main objective is to explain the bad debts problems
which are exist in Indian public sector banks.Indian banks are influenced by other by the browbeat actions
of politicians and other bureaucrats to by lending the loans for the priority sectors which are under the
control . As per the author there is no uniformity in forming proper policies to resolve and no stability in
maintaining NPA regulations and he also emphasizes on the sectors which has great impact on NPA by
increase in loans and advances such as agriculture and small scale industry. According to author the
advance which are lended by bank for agriculture , small scale industries and are yielding better result for
banks due to their reason . NPA had been reduced and there is effective control on NPA’s. This paper
concluded that NPA problem can be tackled by making a systematic evaluation.
ASHOK KHURANA AND MANDEEP SINGH (YEAR) in his paper: “a study of new private sector
banks in India” presents the recent changes of new private sectors which are existing in India after the
Narasimham committee recommendations. This paper objective is to outline how a private sector banks
manage NPA by using management tools . Here the author explain a pivotal role of private sector banks in
Indian banking industry by comparing public sector banks and by emphasizing NPA impact on the Indian
banking industry. According to this research private banks have a strong competitive advantage over the
public sector banks by enabling effective dimensions like low cost technology, capital and labor
management and even those banks are facing the similar problem which are resulting in high growth of
NPA in absolute and relative terms. He emphasizes to treat NPA as a challenge not a threat for the banking
sector, and talks about recession happened in global leads to weaken the domestic markets. This paper
concludes the systematic evaluation and the various management tools which are implemented by private
sector banks can reduce the NPA growth.
PACHA MALAYADRI AND S.SIRISHA(YEAR) In this paper “A comparative study of non
performance asset in Indian banking industry” conducted a relative study on Indian Banking industry
by comparing the public sector banks and private sector banks. This paper presents the weaker sections of
public and private sector banks in managing NPA which are becoming a big threat for Indian banking
sector. The objective of this paper is to analyze the state of affairs of NPA and to identify the weak points
in management of NPA undertaken by public and private sector banks. In this research paper author
methodology to identify the weak section is by analyzing trend of NPA over certain periods using statistical
tools like percentages and compound annual growth rate in which this tool evaluate the value of a specified
period. By concluding this paper author in his research upholds the public sector banks management by
identifying more weak points in private sector banks NPA management. According to author research on
both the sectors the public sector banks has attain a greater perforation compared to private sector.
REKHA ARUNKUMAR AND DR.G.KOTRESHWAR((YEAR) in their research paper “Risk
management in commercial banks” attempted to explain the importance of Risk Management. This paper
concept is to understand the risk involved in every Indian banks. According to author the survival of Indian
banks success are purely based on risk management tools. Effective risk management can retail their share
market for long run and the main objective of this research is to analyze the trends of NPA in commercial
banks which are existing in India and also to study relationship between diversified portfolio and NPA of
public and private sector banks. Authors methodology is based on comparing Indian banks NPA with
International banks NPA to identify the state of NPA. Author’s exhibits that effective management of
credit risk can lead to better and long duration success in banking industry. This has to be achieved by
clearly understanding the complete concept of risks which are involved in banking institutions by
quantifying risks and diversifying activities. This paper concludes the NPA can be effectively managed by
implementing proper tools like credit risk management system, internal checks and negotiated settlement
strategy. This research paper also tells the Non Performing Assets indicators of credit risk by giving the
measures to manage like adoption of Capital Adequacy Ratio(CAR) which acts as bulwark against Credit
Risk.
BALASUBRAMANIAM (year) In his work “Non performing assets and profitability of commercial
banks in India” highlighted the impact of NPA on profitability of banks and also to present the issues
and challenges of banks which are influencing the financial stability of economy and commercial banks.
This paper methodology is by making trend analysis of NPA in a group wise and also by collecting the data
of scheduled commercial banks and by making provisions on NPA. This paper suggests the banks to follow
the practices which are propounded by RBI called Basel Standards which leads for a asset classification,
capital adequacy and provisioning. This paper also analyze the trend of Non Performing Assets by
comparing various banks and also helps in restructuring of advances to various priority sectors on the basis
of asset classification and also emphasis to introduce Basel III framework of guidelines. This research paper
concludes as the observations of asset quality, NPA of various sector banks are not well managed and this
can be reduced by introduction of Basel III norms which increase profitability and high credit growth
deposits, better return on assets and equities.
SARAT DHAL AND BM MISHRA(YEAR) in his research paper “Procyclical management of banks
nonperforming loans by the Indian Public Sector Banks”. analyzed procyclicality of bank indicators
with regard to NPAs of Indian public sector banks. Author methodology to identify the credit culture by
using panel regression model, credit variables and also uses the pooled regression analysis based on the
balance sheet of public sector banks and this research also identifies policy implications for a sound and
stable banking industry in which the NPA can be effectively managed by proper interest rate, capital buffers
system and management of credit risk. This paper author conducted a analysis of procyclicality of bank
index or indicators in which more emphasis on the big economic threat Non Performing Assets which are
majorly influenced by the capital requirement of the banks and business cycle and new regulatory policies
and procedures laid down by Reserve Bank of India and other factors like Asset size, credit and financial
innovations. This paper concludes that a significant policy approach to banking sector can lead to better
lending and proper maintenance of credit culture which directly influence NPA loans for better
management.
INDIRA RAJARAMAN AND GARIMA VASISHTHA( YEAR) conducted a research on major Indian
banks threat called NPA in public sector units which consists of 27 government owned banks. “In this “Non
performing loans of public sector banks: some panel results” this paper concept is to present current
state of NPA in public sector units over a five period of years and to know the variation in commercial
banks with regard to NPA which leads to increase or decrease in operating efficiency in the banks. This
paper mainly focuses on weak banks which are Indian bank and Union bank of India identified by Verma
committee and outlines the measures to increase in operational efficiency of banks and to implement the
policy which leads to better management of Nonperforming loans. According to this paper NPA levels are
mainly influenced by number of factors like legal obstacles, financial suppression and other economic
reforms. This paper concludes that the recapitalization of weak banks cannot resolve the problem of NPA
rather restructuring and controlling, the effective management of NPA can be done by adapting proper
policies and models for weaker section banks which can easily reduce the threat of NPA in public sector
banks.

OBJECTIVES OF THE STUDY:

 To analyze the gross and net NPAs of selected banks
 To Study the NPAs management tools and the causes of failure of managing NPAs of
selected banks.
 To offer suggestions based on the findings of the study for effective management of NPAs.

Methodology:
Research is an art of scientific investigation. Primary data was collected from the bank managers in
which the reasons for banks inefficiencies in managing nonperforming assets are identified and
collected, this research paper utilizes more of secondary data from the various sources like
newspapers, research websites, banks yearly statements which are published by respective banks and
magazines like business line, Forbes. These sources provided the current position and past data of
the banks related to nonperforming assets and other information about the problems and the
resolution techniques which are happening in Indian banks. The type of research design which used
for this study is “applied and descriptive method”.

THE GROSS AND NET NPAS OF SELECTED BANKS

Public sector banks list with their gross and net % NPA of last 5 years
This is the position of public sector banks which presents the gross and net NPA in which means the total
number of NPA’s of the bank which are added and the total number of actual bad assets deducted by
provisions are taken into consider for the complete evaluation of nonperforming assets status in each and
every public sector banks. Totally there are 27 public sector banks, here in this table analysis is made only
for 10 major public sector banks with their gross and net NPA data of last 5years which includes the current
year 2018 bank statements.

BANKS 2018 2017 2016 2015 2014

LIST
GROSS NET GROSS NET GROSS NET GROSS NET GROSS NET
SBI 10.91 5.73 6.90 3.71 6.50 3.81 4.25 2.12 4.95 2.57
CANARA 11.84 7.48 9.63 6.33 9.40 6.42 3.89 2.65 2.49 1.98
BANK
UCO 24.64 13.10 17.12 8.94 15.43 9.09 6.76 4.30 4.32 2.38
PUNJAB 18.38 11.24 12.53 7.81 12.90 8.61 12.90 8.61 6.55 4.06
NATIONAL
BANK
BANK OF 12.26 5.49 10.46 4.72 9.99 5.06 3.72 1.89 2.94 1.52
BARODA
ORIENTAL 17.63 10.48 13.73 8.96 9.57 6.70 5.18 3.34 3.99 2.82
BANK OF
COMMERCE
IDBI BANK 27.95 16.69 21.25 13.21 10.98 6.78 5.88 2.88 4.90 2.48
LIMITED
VIJAYA BANK 6.34 4.32 6.59 4.36 6.64 4.81 2.78 1.92 2.41 1.55
UNION BANK 15.73 8.42 11.17 6.57 8.70 5.25 4.96 2.71 4.08 2.33
SYNDICATE 11.53 6.28 8.50 5.21 6.70 4.48 3.13 1.90 2.62 1.56
BANK
Source: https://www.moneycontrol.com
The above table depicts the total percentage of NPA in which showcases the gross and net NPA of 10 banks
of public sector of last five years from 2014-2018. Currently public sector banks accounts for about 87%
of total assets of banking system. During the year 2009 the public sector banks share of NPA was
1.08%respectively. As year passes public sector banks becomes the highest holder of npa which gradually
increased compared to private sector, during the year 2012 it was stood to 0.19% of the total amount of
NPA of 1124.89 billion. Among all the public sector banks which is above considered SBI has the highest
NPA of 1.86 lakh crore in year 2018. In the year 2008 to 2013 sbi was in the position of 0.97 to 0.31 of
NPA, it has gradually increased over the years, in the year 2014 net NPA and gross NPA of sbi is 2.57
%and 4.95% in which go on increasing recent years by many defaulters which now it accounts 10.91% of
gross NPA and 5.73% of net NPA which increased by 8.34% compared to NPA of 2014. The second largest
public sector bank with NPA Punjab national bank which recently indulged in fraud case which was most
likely worsen by frauds by nirav modi-mehul choksi which accrues to Rs11,400 crore. During the year
2014 pnb’s gross and net NPA position is at 6.55% and 4.06% but over the years it has gradually increased
to 12.53%of gross and 7.81% of net NPA in 2017 i which 5.98% increase in their NPA. After the fraud
case in pnb NPA stoods to 18.38% of gross and 11.24% of net NPA that amounts to NPA of Rs 57,360crore
in the present. Canara bank and bank of baroda banks NPA also gradually increased to Rs39,164 crore and
Rs 46,307 crore during the years. Same increased variations has happened in each public sector banks
which has risen to 76% due to many reasons It is depicting that public sector banks share for amount of
NPA’s from 2014 to 31 march 2018. From the above table it can inferred that during the years 2014 to 2018
public sector banks has the higher NPA when compared to private sector banks which accounts for about
87% of total assets of banking system.

PRIVATE SECTOR BANKS LIST WITH THEIR GROSS AND NET NPA OF LAST 5YEARS

These are the banks which are not owned or controlled by government where the private shareholders are
the owners of the banks and who entitles the right. Totally there are 22 private sector banks which are
namely divided as old private sector banks and new private sector banks. Here in this paper 10 private
sector banks are taken into consideration and identified the gross and net NPA of past years which makes
the comparative analysis on the basis of last 5 years banks statement of particular private sector banks.

BANKS LIST 2018 2017 2016 2015 2014

GROSS NET GROSS NET GROSS NET GROSS NET GROSS NET
AXIS 6.77 3.40 5.04 2.11 1.67 0.70 1.34 0.44 1.22 0.40
HDFC 1.30 0.40 1.05 0.33 0.94 0.28 0.90 0.20 1.00 0.30
FEDERAL 3.00 1.69 2.33 1.28 2.84 1.64 2.04 0.73 2.46 0.74
BANK
YES BANK 1.28 0.64 1.52 0.81 0.76 0.29 0.41 0.12 0.31 0.05
KOTAK 2.22 0.98 2.59 1.26 2.36 1.06 1.85 0.92 1.98 1.08
MAHINDRA
KARNATAKA 4.92 2.96 4.21 2.64 3.44 2.35 2.95 1.98 2.92 1.91
BANK

ICICI 8.84 4.77 7.89 4.89 5.21 2.67 3.78 1.61 3.03 0.97
CITY UNION 3.03 1.70 2.83 1.71 2.41 1.53 1.86 1.30 1.81 1.23
BANK
DHANALAXMI 7.35 3.19 4.78 2.58 6.36 2.78 7.00 3.29 5.98 3.80
BANK
KARUR VYSYA 6.56 4.16 3.58 2.53 1.30 0.55 1.85 0.78 0.82 0.41
BANK
Source: https://www.moneycontrol.com
The above table shows the gross and net NPA of 10 private sector banks of last five years from 2014 to
2018. During the year 2013 gross NPA’s to gross advance ratio is about 1.79% which is not a heavy
compared to public sector banks. After the private banks ripe to nationalize in banking industry it took its
strong position in the banking sector in which new private sectors came into existence. In comparative study
of private sector banks ICICI bank has the most worst NPA staus which amounts to Rs44,237 crore in
which during the year 2014 gross and net NPA 3.03% and 0.97% has stoods up to 8.84% of gross and
4.77% of net NPA which increased by 5.81% over the years. Icici bank followed by axis bank with NPA
of Rs22,136 crore which results in 6.77% of gross and 3.40% during the year 2018 which also increased
by 3% of net value of NPA compared to 2014 year npa data. Private banks in regard to Icici and Axis bank
have net NPA at 15% and 25% of their net worth. Even the old private sector banks Karnataka bank,
dhanalaxmi bank, federal bank, city union bank are also facing same increasing variations in NPA from
last few years with 1.05%, 0.61%, 0.95%, .47% of net NPA. Totally the rate of increase was 40.8% in the
case of private sector banks.
The whole study and the analysis are done on both public and private sector banks in which 10 each sector
banks has been taken to analysis. The gross and Net nonperforming assets for 5years starting from 2014 to
2018 is taken into consideration. Currently NPA of private sector banks were considerably low at Rs
1.03lakh crore compared to public sector banks which stoods up to 10.25 lakh crore as on 31 march 2018.
Gross NPA of private banks have grown from Rs19800 crore in financial year 2013-2014 to Rs 109,076
crore in march 2018. The NPA of public and private sector banks as on 2017 was Rs 7,33974crore and Rs
1,02808crore.

MANAGING TOOLS

 Insolvency and Bankruptcy code: This scheme of government plays an important role in
addressing the NPA of the banking sector. This code was introduced and passed on 5th may 2016 in
lok Sabha which creates single law for insolvency and bankruptcy which is for time bound
resolution of stressed assets and also provides a specialized resolution mechanism which changes
the negative perception of recovery litigation associated with India.
 One time settlement: Every bank consists loan recovery policy which covers among other things
negotiated settlement of NPA’s in which OTS scheme has been implemented in most of public
sector banks. This scheme focused towards sectors like agriculture, micro small and medium
enterprise, education and typically upper limit on the amount of nonperforming asset and retail
sectors.
 More number of Asset reconstruction companies: These are the specialized financial institution
indulges in buying bad loans from banks to clean up the balance sheet. These companies’ helps to
reconstruct the bad assets without any intervention of courts by reducing nonperforming assets ratio
in banks, at present there are 19 asset reconstruction companies. According to recent report ARC’s
became underperformers because of certain norms of RBI and rising NPA in which they are
insufficient to tackle the country’s 8lakh crore NPA so that RBI has undergone with some steps to
bring life into asset reconstruction activities like FDI which is set to 100% and amended SARFAESI
Act in 2016 to make Asset reconstruction companies more efficient.
 Change in banking laws: By revision of banking laws in India which tells to give RBI more powers
to monitor bank accounts of big defaulters with huge amount by setting up a committee called Joint
Lenders Forum (JLF) and oversight committee to curb NPA issue which is facing by banking
industry to large extent.
 Timely completion of projects: Time is the crucial element in any restructuring and rehabilitation
activities. It has to be utilized to the fullest that is without delay a stipulated project has to be
completed which leads to additional funding and relaxation for the banks and also helps to solve the
problem of nonperforming assets in banks.
 Loan restructuring schemes: in the recent years RBI has come up with number of schemes to
reduce the number of NPA in the country by proposing schemes such as corporate debt restructuring
(CDR), formation of joint lenders forum (JLF), flexible structuring for long term project loans,
strategic debt restructuring (SDR) scheme and sustainable structuring of stressed assets to check the
threat of NPA’s. Reserve bank of India has also floated the 2 concepts of Private asset management
company (PAMC) and National asset management company (NAMC) for resolution of gstressed
assets.
 Banks make their Cash reserve ratio (CRR) attractive: Cash reserve ratio is a ratio in which
commercial banks have to invest certain percentage of their deposits in specified financial securities
 like central bank .This gives greater control to the central bank over money supply which also spurs
economic growth and assists in building and sustaining the solvency position of any scheduled
commercial bank.
 Credit risk management: This is the practice of mitigating those losses by understanding the
adequacy of both a bank’s capital and loan loss reserves at any given time. This is to maximize a
bank and risk adjusted rate of return by maintaining credit risk exposure within acceptable
parameters.
 SARFAESI ACT 2002: The Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, of 2002 empowers banks and financial institutions to recover
their nonperforming assets without the intervention of courts. This act also provides for sale of
financial assets by banks and financial institutions to Asset Reconstruction companies which
mitigate losses faced by banks due to huge amount of NPA.
 Tightening credit monitoring: The tracking of an individual’s credit history for any changes or
suspicious activities and the process of monitoring takes many steps to ensure negligent loans in
parameter of the credit policy followed when it comes to delinquency with the adoption of this credit
monitoring, the possibility of credit fraud and identity theft is curtailed and also reduce
nonperforming assets by initially identification of frauds in banks.

Reasons for failure of banks in managing NPA

 Frauds: Indian banks are suffering from lot of frauds which are recently happening in great extent
which makes banking sector weaken. According to recent report banks come across with a total loss
of about 70,000 crore due to frauds during last 3 fiscals upto march 2018 for example the case of
Punjab national bank.

 Window dressing in banks balance sheet: The burrowers with the connivance of auditors indulge
in window dressing activities like valuation of closing stock, changing the methods of depreciation,
overcapitalization of assets.

 No proper statutory auditors: Auditors of company or bank has to qualify the report on the
company’s management policies and also review the financial statements but auditors fake the
reports of banks and leads to frauds in banks for example Satyam company case.

 Sanctioning / Approval stage: The chairman or top management people indulge in more lending
sometimes in order to showcase more assets in their balance sheets which leads to serious problems
called nonperforming assets.

 Banks inability to exercise its power: Now-a –days Indian banks are losing their ability to take
charge of their powers properly by many reasons like political interference, corruption and other
macroeconomic changes.

 Lack of fresh capital: Many public sector banks are struggling to raise capital due to rapid
improvement in the market share of private sector banks through FDI and FII.

 Competition: Banks are becoming challenging day by day by the cut throat competition between
public and private sector banks and even from the foreign banks. Private banks are reaping many
benefits by increasing their market share and also by rich dividends.

 Lethargic working style: Banks are holding the ageing workforce in which people have a
negligence working style which is mainly happening in public sector banks in which banks needs a
drastic change to take dynamism and market power of private banks.

 Problem of debt recovery tribunals: These are the debt recovery banks with 33 Debt Recovery
Tribunals(DRT’s) 5 Debt Recovery Appellate Tribunals(DRAT’s) functioning at various parts of
country but the slow process of resolution of debts , incapability to handle cases related to large
borrowers and no proper or timely officials appointed make the tribunals more weaker and which
 nearly 93000 cases are pending at end of 2016 and average recoveries are not up to mark it is only
25.7% on the dollar in India which is one of the worst among the similar economies.

 Nexus between bank managers and the agents and also between politician and industrialist.

FINDINGS:
The following inferences were observed from this study
 Nonperforming assets is a big threat for entire banking industry which makes the Indian
banks weaken in terms of the growth in Indian economy.
 By comparative analysis of both the sectors Private sector banks are managing their NPA
portfolio slightly better compared to public sector banks which gradually increasing in the
recent years.
 Major reasons for the failure of the effective management of NPA in Indian banks are
identified by this research
 Above study also examines the root causes for the occurrence of the NPA in Indian banks.
 State bank of India and punjab national bank which is public sector banks has the highest
record of NPA in Indian banks.
 Managing requirements are specified in which the banks are implementing those tools for
the effective control of the NPA in both sectors of the bank.
 Status of asset reconstruction companies which are decreased in the number in past years
and the new government norms and schemes to control the NPA burden.
 Over lending results in diversion of funds which leads to rise in NPA
SUGGESTIONS:
 RBI need to tighten policy which can helps to build Monetory Credibility in banking
sector
 Banks should not fall under any political or any social interference in the conduct of
lending the loans which leads for the illegal activities.
 Real time gross settlement can helps the bank from the defaulters
 Encourage or fosters for more disciplined lending practices by banks
 Banks should Improve incentives to enhance the efficiency of the bank operations
 Commercial Banks has to obey the RBI rules and regulations which facilitate the banks
to follow the proper lending practices.
 Merging all weak banks and give more teeth to banks management can reduce the
problems of stressed assets in banking sector.
 Speedy judiciary can helps the banks for the effective management
 Banks need to honk their skills in project appraisal and working of need based finance
for working capital requirement
 More number of asset reconstruction companies are to be established to solve the NPA
problem in the banks.

CONCLUSION:
NPA is threat to many banking industry which is increasing over the years which has to
overcome by strict measures. This study analyzed the nonperforming assets of public and private
sector banks using comparative analysis method and results of this study provides the important
insights for banks managing tools which should be implemented in each and every Indian banks
and more emphasizes on the monetary policies, schemes, norms which are laid down by
government. This problem can be reduced by effective managing tools, by developing the proper
information system and bank staffs should provide well versed training programs to analyze the
financial statements.
REFERENCE:
GOYAL KANIKA, Study Of Non-Performing Assets Management Of Indian PublicSector
Banks, ASIA PACIFIC JOURNAL OF RESEARCH IN BUSINESS MANAGEMENT, ISSN:
2229-4104-2010
 1. B.SELVARAJAN AND DR. G. VADIVALAGAN, a study on management of npa in
priority sector reference to Indian banks and public sector banks, GLOBAL JOURNAL OF
MANAGEMENT AND BUSINESS RESEARCH FEB 2013
2. K.K SIRAJ AND SUNDAR SANAN PILLAI, efficiency of NPA management in SCB’sz,
Journal of applied finance and banking 2013,ISSN:1792-6580
3. ASHOK KHURANA AND MANDEEP SINGH, Npa management: a study of new private
sector banks in India, Journal No: 20774
4. PACHA MALYADRI AND S. SIRISHA, A comparative study of non performance asset in
Indian banking industry, internal journal of economic practices and theories 2011, ISSN:
2247-7225
5. PROF. REKHA ARUNKUMAR AND DR.G. KOTRESHWAR, “risk management in
commercial banks” (a case study of public and private sector banks)
6. C.S. BALASUBRAMANIAM, Non performing assets and profitability of commercial
banks in India, national monthly referred journal of research in commerce and management,
ISSN: 2277-1166
7. SARAT DHAL AND B M MISHRA, procyclical management of banks nonperforming
loans by the Indian public sector banks, published on may 2012
8. INDIRA RAJARAMAN AND GARIMA VASISHTHA, Non performing loans of psu
banks: some panel results, published by: economic and political weekly, ISSN: 00129976
EISSN: 023498846.
9. http://www.businessworld.in/article/How-NPA-Of-Banks-Increased-Over-Last-Five-
Years/27-05-2017-119052/
10. https://www.fortuneindia.com/macro/will-an-arc-or-amc-solve-the-npa-problem-of-public-
sector-banks/102001
11. https://www.scribd.com/doc/35847069/comparative-study-of-the-public-sector-amp-
private-sector-bank
12. https://www.moneylife.in/article/npas-of-nationalised-banks-jumped-143-percentage-in-
two-years-to-march-2017/50530.html
ADD FEW more references

What are the various steps taken to tackle NPAs?

NPAs story is not new in India and there have been several steps taken by the GOI on legal, financial,
policy level reforms. In the year 1991, Narsimham committee recommended many reforms to tackle
NPAs. Some of them were implemented.

The Debt Recovery Tribunals (DRTs) – 1993

To decrease the time required for settling cases. They are governed by the provisions of the Recovery of
Debt Due to Banks and Financial Institutions Act, 1993. However, their number is not sufficient therefore
they also suffer from time lag and cases are pending for more than 2-3 years in many areas.

Credit Information Bureau – 2000

A good information system is required to prevent loan falling into bad hands and therefore prevention of
NPAs. It helps banks by maintaining and sharing data of individual defaulters and willful defaulters.
Lok Adalats – 2001
They are helpful in tackling and recovery of small loans however they are limited up to 5 lakh rupees loans
only by the RBI guidelines issued in 2001. They are positive in the sense that they avoid more cases into
the legal system.

Compromise Settlement – 2001

It provides a simple mechanism for recovery of NPA for the advances below Rs. 10 Crores. It covers
lawsuits with courts and DRTs (Debt Recovery Tribunals) however willful default and fraud cases are
excluded.

SARFAESI Act – 2002

The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest
(SARFAESI) Act, 2002 – The Act permits Banks / Financial Institutions to recover their NPAs without the
involvement of the Court, through acquiring and disposing of the secured assets in NPA accounts with an
outstanding amount of Rs. 1 lakh and above. The banks have to first issue a notice. Then, on the borrower’s
failure to repay, they can:

1. Take ownership of security and/or

2. Control over the management of the borrowing concern.
3. Appoint a person to manage the concern.

Further, this act has been amended last year to make its enforcement faster.

ARC (Asset Reconstruction Companies)

The RBI gave license to 14 new ARCs recently after the amendment of the SARFAESI Act of 2002. These
companies are created to unlock value from stressed loans. Before this law came, lenders could enforce
their security interests only through courts, which was a time-consuming process.

Corporate Debt Restructuring – 2005

It is for reducing the burden of the debts on the company by decreasing the rates paid and increasing the
time the company has to pay the obligation back.

5:25 rule – 2014

Also known as, Flexible Structuring of Long Term Project Loans to Infrastructure and Core
Industries. It was proposed to maintain the cash flow of such companies since the project timeline is long
and they do not get the money back into their books for a long time, therefore, the requirement of loans at
every 5-7 years and thus refinancing for long term projects.

Joint Lenders Forum – 2014

It was created by the inclusion of all PSBs whose loans have become stressed. It is present so as to avoid
loan to the same individual or company from different banks. It is formulated to prevent the instances where
one person takes a loan from one bank to give a loan of the other bank.
Mission Indradhanush – 2015
The Indradhanush framework for transforming the PSBs represents the most comprehensive reform effort
undertaken since banking nationalization in the year 1970 to revamp the Public Sector Banks (PSBs) and
improve their overall performance by ABCDEFG.

A-Appointments: Based upon global best practices and as per the guidelines in the companies act, separate
post of Chairman and Managing Director and the CEO will get the designation of MD & CEO and there
would be another person who would be appointed as non-Executive Chairman of PSBs.

B-Bank Board Bureau: The BBB will be a body of eminent professionals and officials, which will replace
the Appointments Board for the appointment of Whole-time Directors as well as non-Executive Chairman
of PSBs

C-Capitalization: As per finance ministry, the capital requirement of extra capital for the next four years
up to FY 2019 is likely to be about Rs.1,80,000 crore out of which 70000 crores will be provided by the
GOI and the rest PSBs will have to raise from the market.

Financial Year Total Amount

FY15-16 25,000 Crore

FY16-17 25,000 Crore

FY17-18 10,000 Crore

FY18-19 10,000 Crore

Total 70,000 Crore

D-DEstressing: PSBs and strengthening risk control measures and NPAs disclosure.

E-Employment: GOI has said there will be no interference from Government and Banks are encouraged
to take independent decisions keeping in mind the commercial the organizational interests.

F-Framework of Accountability: New KPI(key performance indicators) which would be linked with
performance and also the consideration of ESOPs for top management PSBs.

G-Governance Reforms: For Example, Gyan Sangam, a conclave of PSBs and financial institutions. Bank
board Bureau for transparent and meritorious appointments in PSBs.

Strategic debt restructuring (SDR) – 2015

Under this scheme banks who have given loans to a corporate borrower gets the right to convert the
complete or part of their loans into equity shares in the loan taken company. Its basic purpose is to ensure
that more stake of promoters in reviving stressed accounts and providing banks with enhanced capabilities
for initiating a change of ownership in appropriate cases.

Asset Quality Review – 2015

Classify stressed assets and provisioning for them so as the secure the future of the banks and further early
identification of the assets and prevent them from becoming stressed by appropriate action.

Sustainable structuring of stressed assets (S4A) – 2016

It has been formulated as an optional framework for the resolution of largely stressed accounts. It involves
the determination of sustainable debt level for a stressed borrower and bifurcation of the outstanding debt
into sustainable debt and equity/quasi-equity instruments which are expected to provide upside to the
lenders when the borrower turns around.

Insolvency and Bankruptcy code Act-2016

It has been formulated to tackle the Chakravyuaha Challenge (Economic Survey) of the exit problem in
India. The aim of this law is to promote entrepreneurship, availability of credit, and balance the interests of
all stakeholders by consolidating and amending the laws relating to reorganization and insolvency
resolution of corporate persons, partnership firms and individuals in a time-bound manner and for
maximization of value of assets of such persons and matters connected therewith or incidental thereto.

Pubic ARC vs. Private ARC – 2017

This debate is recently in the news which is about the idea of a Public Asset Reconstruction Companies
(ARC) fully funded and administered by the government as mooted by this year’s Economic Survey Vs.
the private ARC as advocated by the deputy governor of RBI Mr. Viral Acharya. Economic survey calls it
as PARA (Public Asset Rehabilitation Agency) and the recommendation is based on a similar agency being
used during the East Asian crisis of 1997 which was a success.

Bad Banks – 2017

Economic survey 16-17, also talks about the formation of a bad bank which will take all the stressed loans
and it will tackle it according to flexible rules and mechanism. It will ease the balance sheet of PSBs giving
them the space to fund new projects and continue the funding of development projects.