A Grand Project on Non Performing Assets Comparative analysis of Private Sector Bank & Public Sector Bank Submitted

to Gujarat University Under the guidance of Ms. Rajeswari Parmar Assistant Professor PARUL INSTITUTE OF BUSINESS ADMINISTRATION BBA PROGRAMME

PREPARED BY: 1. 2. 3. 4. 5. 6. Juhi Patel Mokshesh Chhajed Neetu Dalmia Pratibha Jain Sheetal Sharma Vatsal Kothari

MEANING OF NPA

Non Performing Asset means an asset or account of borrower, which has been classified by a bank or financial institution as sub-standard, doubtful or loss asset, in accordance with the directions or guidelines relating to asset classification issued by RBI.

An amount due under any credit facility is treated as "past

due" when it has not been paid within 90 days from the
due date.

CLASSIFICATION OF NPA
A. Standard (Assets): These are loans which do not have any problem are less risk. B .Substandard (Assets): These are assets which come under the category of NPA for a period of less than 12 months. C. Doubtful (Assets): These are NPA exceeding 12 months. D. Loss (Assets): Where loss has been identified by the bank or internal or external auditors or the RBI inspection but the amount has not been written off wholly.

OBJECTIVES OF THE STUDY

To study the datas of NPAs of last three years in public as

well in private sector banks

To identify the factors affecting NPA To find out the effectiveness of recovery mechanism adopted by banks for NPA

To offer suggestions based on the study To find out the profitability of the banks

LITERATURE REVIEW
Nelson

M. Waweru:

Study that many financial

institutions that collapsed in Kenya Since 1986 due to

non performing loans, this study investigated the causes of non performing loans, the actions that bank managers have taken to mitigate that problem and the level of success of such actions.

CONTD..

Kevin Greenidge, The purpose of this paper is to build a multivariate model, incorporating macroeconomic and bank-specific variables, to forecast non-performing loans in the banking sector of Barbados. On an aggregate level, our model outperforms a simple random Walk model on all forecast horizons, while for individual banks; these

forecasts tend to be more accurate for longer prediction

periods only.

RESEARCH METHODOLOGY
1. Primary Data:

The datas collected were analyzed with the help of questionnaire and these questionnaires are filled by three public banks and three private banks.

The tables are used to represent the consolidated data. The graphical representation is also used for better comprehension and presentation.

2. Secondary Data:

We collected secondary data through RBI website.

POPULATION

There are around 21 public sector banks and 19

private sector banks.

SAMPLE SIZE
We took the sample of three public banks and three private banks.

The public banks which we selected as sample are as follows: SBI Bank Allahabad Bank

Bank of Baroda

The private banks which we selected as sample are as follows:

YES Bank

HDFC Bank
Kotak Mahindra Bank

SAMPLING TECHNIQUE
We

have used Convenient sampling from the non

probability sampling method, which is included in the

types of sampling methods.

DATA ANALYSIS TOOL

We

have use EXCEL as data analysis tool.

DATA ANALYSIS
1. Policy Adopted
Private sector Bank
00

Public Sector Bank 0 0

33.33 IRMD RMP ORM 66.67 IT

33.33

IRMD RMP ORM 66.67 IT

IRMD Integrated Risk Management Division RMP Risk Management Policy ORM Operational Risk Management IT Information Technology

2. Measurement of NPA
Private Sector Bank
0

Public Sector Bank

33.33 EARLY STAGE ALERT STAGE ADVANCE STAGE 66.67

33.33

33.33 EARLY STAGE ALERT STAGE ADVANCE STAGE

33.33

3. Progress in NPA
Private Sector Bank
0 0 POOR

Public Sector Bank

0 0

33.33

SLOW

33.33 POOR SLOW

MODERATE

MODERATE GOOD 66.67

66.67

GOOD

4. Quantum of losses
Private Sector Bank
0 0 0

Public sector bank

0 0 0

LESSTHAN 25% 25-50% 50%-75% ABOVE-75%

LESSTHAN 25% 25-50% 50%-75% ABOVE-75%

100

100

5. Precautions adopted
Private Sector Bank
0 0

Public Sector bank

COLLATERAL GUARANTEE 33.33 GUARANTEE AND ANY OTHER SECURITY 0 COLLATERAL SECURITY MEASURES OTHERS

COLLATERAL GUARANTEE
33.33 GUARANTEE AND ANY OTHER SECURITY 66.67 COLLATERAL SECURITY MEASURES OTHERS 66.67

HYPOTHESES TESTING
We have used F-test calculation as hypotheses testing for the calculation of NPA of both sectors. The datas are of last 3years. The source from where data has been collected is www.iba.in iba (Indian banking association)

Net NPA calculation of public and private sector banks: 1. Public sector banks (in crore)
BANK Allahabad Bank 2011 736 2012 1092 2013 4172

SBI
BOB Total

12347
791 13874

15819
1544 18455

21956
4192 30320

2. Private sector banks (in crore)

BANK 2011 2012 2013

HDFC
KOTAK

296
211

352
237

469
311

Mahindra
YES Bank Total 9 516 17 606 7 787

H0=There is no significance difference in NPA of public and private sector banks. H1=There is significance difference in NPA of public and private sector banks
F-Test Two-Sample for Variances Public Bank Mean Variance Observations Df F P(F<=f) one-tail F Critical one-tail 20883 72039117 3 2 3781.51478 0.00026437 19 Private Bank 636.3333333 19050.33333 3 2

CONCLUSION

F cal> F tab 3781.51 > 0.00 Here F calculated value is more than the F tabulated value so here Hypotheses is rejected.

So we can say that there is significant difference in net

NPA of public and private sector banks.

FINDINGS

There is an impact of NPA on the profitability of the bank. There is a significant difference in the NPA of public sector and private sector banks.

The main internal factors affecting NPA in private sector banks are : improper credit appraisal, lack of effective follow-up , excessive overdraft lending , lack of post

credit supervision.

CONTD..

The main external factors affecting private sector banks are: natural calamities,industrial sickness, business failure.

The main internal factors affecting NPA in public sector banks are : Excessive Overdraft Lending, Lack of Effective Follow-up ,Absence of Security, Obsolete Technology, Willful Default/Fraud.

CONTD..

The main external factors affecting public sector banks are : Natural Calamities, Industrial sickness, Business failure,Labour Problems of Borrowed Firms.

The recovery mechanism adopted by the private sector

banks are as follows : Outsourcing, Recovery Campus,

One-time-settlement Scheme, Self involvement, Corporate Restructuring.

CONTD..

The recovery mechanism adopted by the public sector banks are as follows: One-time-settlement Scheme, Self involvement, Corporate Restructuring, SARFAESI Act.

CONCLUSION
Growing NPAs is one of the biggest problems that the banks are facing today. If proper management of the NPAs is not undertaken it would hamper the efficiency of the banks. If the concept of NPAs is taken very lightly it would be dangerous for the banking sector. The NPAs destroy the current profit and interest income and affect

the smooth functioning of the recycling of the funds.

CONTD..
Banks also redistribute losses to other borrowers by charging higher interest rates. Lower deposit rates and higher lending rates repress savings and financial markets, which in turn hampers the economic growth of the

country. Thus, it is highly essential for the banks to focus

their attention on growth of NPAs and take appropriate measures to regulate their growth.

REFERENCES

1)Retrieved from: http://rbi.org.in/scripts/AnnualPublications.aspx?head=Tre nd and Progress of Banking in India .

2)

Retrieved from:

http://rbi.org.in/scripts/AnnualPublications.aspx?head=Sta
tistical Tables Relating to Banks of India.

3)

Retrieved from:

http://rbi.org.in/scripts/NotificationUser.aspx.

CONTD..

4)

Retrieved from:

http://en.wikipedia.org/wiki/Banking_in_India

5)

Retrieved from:

http://www.ibef.org/industry/Banking.aspx

6)

Retrieved from:

http://www.bankingindiaupdate.com/general.html