NON PERFORMING ASSETS OF SCHEDULE COMMERCIAL BANKS IN INDIA: A STUDY

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1 Volume 3, Issue 12 (December, 2014) Online ISSN Published by: Abhinav Publication Abhinav National Monthly Refereed Journal of Research in NON PERFORMING ASSETS OF SCHEDULE COMMERCIAL BANKS IN INDIA: A STUDY Debasish Biswas Lecture, Umeshchandra Collage, Kolkata, India dbiswas191@gmail.com ABSTRACT Now a day banks can play an important role for the economic development of a country. There are required to achieve growth in this sector. But there are various risk available in this sector like liquidity risk, interest risk, Market risk, operational risk and management risk. Besides this an important risk is available which is loan recovery risk. The financial position and profitability position of a bank is totally depends on NPA of this banks. So, at present NPA is a big concern for banking sector. The NPA is comparatively high in the public sector. To improve the efficiency and profitability of banks the NPA need to be reduced and controlled. Otherwise difficult for banking sector to stay in the market as long as possible. In this paper try to analysis in detail the NPA of schedule commercial bank in India during past year. Keywords: NPA; Recovery Risk; Market Risk; Management Risk INTRODUCTION There has been remarkable changed in the banking sector since Business of banking has spread throughout the country like India. The growth of economic has moved on because of banking sector. Large number of banking has been set up in our country. So, automatically competition of each other has move on. The main function of banks is to provide loans and advance for needy person for their up gradation for the growth of industry and also growth of the economy. If this money is not backed in the banks regular as per the due dates than it is created a major problem or affecting the performance of the banks. On this situation a term we have to use.this term is called non-performing assets (NPA). NPA means a kind of a loan and advance where repayment of installment and interest of principal or both remain unpaid for a certain period of time in our country like India. Once the borrower has failed to make installment with principal and interest payment for 90 days then this loan and advance is considered as non-performing assets. Interest on this loan and advance is the earning path of banking industry. So NAP is problematic for financial institution because this institution cannot able to earning any other ways through this loan and advance. Banking industry has been affected by NAP in two ways. The one way is that it does not generate any earning for the banks and the other way is that the banking industry are required to take provision for such non-performing assets from their present profit. Generally there are four types of NAP. Standard assets, sub slandered assets, doubtful assets and loss assets, no special provision are required for standard assets of NAP, but all those assets ( loan and advance) which are considered as NAP for a period of 12 months for a period of more than 12 months are called substandard, doubtful assets respectively. but all those assets which cannot be recovered are called as loss assets. The net non-performing assets of banks had gone up 51% in financial year 2013 to rs crore. According to a recent CRISIL report the gross NAP of banks are stated to increase from 3.3% in month 2013 to 4% by March Main objective of our study is to analysis the NPA of schedule commercial bank in India during past year. Available online on 16

2 OBJECTIVES OF THE STUDY 1. To examine the gross NPA and net NPA in schedule commercial bank. 2. To find out gross advance and net advance of schedule commercial bank. 3. To identity the non-performing assets at commercial bank. 4. To indicate classification of loan assets of schedule commercial banks during this period. 5. To offer suitable suggestion for NPA. DATA COLLECTION For this study we have considered NPA in schedule commercial bank as per second schedule of the RBI Act This schedule commercial bank includes public sector bank, private sector bank and foreign bank. Data is gathered from the secondary sources to fulfill our objective. Limitation of this study The present study is taken the year up to 2013 but not taken 2014 due to unavailable of data during this year. INTERPRETATION OF THIS STUDY Table 1. Gross Advance and Net Advance of Scheduled Commercial Bank (Amount In ` Billion) Source: Department of Banking Supervision, RBI. (Statistical table relating to banks in India ) Gross advance means a sum total of all loan assets which have been provided by the banking and financial institution to generally borrow and which provision is less from the gross advance then it is called net advance. Gross NPA is a part of gross advance which is not recovery during this time period that means which is declared as NPA guidelines. When provision is less from the gross NPA then it is called net NPA. Above table indicates that gross advance as well as net advance was increased year by year. This trend is positive on upward during throughout year since VOL. 3, ISSUE 12 (December 2014) 17

3 Table 2. Gross NPA and Net NPA of Schedule Commercial Bank (Amount In ` Billion) Source: Department of Banking Supervision, RBI. (Statistical table relating to banks in India ) Table-2 indicates that during , the percentage of gross NPA of total assets was 10.4% after that; this rate was decreased till But from this rate was continuously increase year by year and during this rate was 3.23%. so, we conclude that the rate of gross NPA as compare with gross advance was reduce during to but after that this rate was increased year by year from to and also we see same trend in case of NPA percentage of total assets. On the other hand, rate of net NPA during was 5.5% of net advance after that this rate was decreased year by year up to but from this rate was increased year by year and during this rate was 1.7% of net advance and 1.0% of total assets. So, trend of net NPA is upward or positively move on. This is not good sign from banking industries and suitable steps should be taken by banking and financial institution as early as possible. Otherwise future of this sector is acceptable and automatically, we have to face as economic trouble in our country like India. Table 3. Bank Group-Wise Classification of Loan Assets of Scheduled Commercial Banks to 2013 (Amount in `Billion) Source: Department of Banking Supervision, RBI (Statistical table relating to banks in India ) This table indicates that during 2008 total value of gross advance was billion out of which 97.61% as standard advance, 1.12% as substandard and.23% as loss advance. But after that percentage rate of standard advance of gross advance were decreased year by year and during 2013 which was 96.58%. But rate of substandard advance was sometimes reduced or sometimes increased during 2010 and 2011 which was.24% and.23% respectively. But rate of gross NPAs were increased year by year. During 2013 this rate was 3.42%.so, we concluded that trend of gross NPAs were VOL. 3, ISSUE 12 (December 2014) 18

4 increased year by year since This is not good indication of banking and financial sector in coming time. So, immediately this sector takes some precaution policy for overcome from this situation. One thing we indicate that the sum of doubtful advance and loss advance is more than substandard advance. Table 4. Sector Wish NPA (Amount In `Billion) Source: Report on trend and progress of banking in India This table indicates the sector wish NPA of schedule commercial bank. We can divide total sector into two parts. One is priority sector and the other one is non-priority sector. The priority sector is considered with agriculture, small scale industry and other sector. This sector mainly or directly help to us for achieving growth in the economy but in case of non-priority sector indirectly help to achieve financial growth for economy. It can be indicated that the NPA ratio in the priority sector was higher than the NPA ratio in the non-priority in the year 2008 and 2011 but this ratio is lower during the year of 2009, and On 2008, total NPA was billion out of which billion is come from priority sector. That means performance of priority sector is not better than non-priority sector. Rate of NPA of agriculture sector was 18.56% during 2008 but which was sometimes increased or sometimes decreased. On 2009 this rate was just 11.7% but increase to 19% and 17.2% during 2012 and 2013 respectively. But during 2013 priority sectors performance is better than non-priority sector because NPA of priority sector was 41% but in case of non-priority sector which was 59%. During 2013 we have taken more or less same type of result as compare on We conclude that during throughout the year contribution of priority sector for NPA is lower than contribution of non-priority sector for NPA.That means recovery of loan from priority sector is higher than recovery of loan from non-priority sector. So banks should take various steps for increasing the recovery rate of loan from non-priority sector. But also indicates that total NPAs during 2012 and 2013 were reduced as compare 2008, 2009, and This is a very good sign for banking sector. CONCLUSION ABD RECOMMENDATION Finally, it can be concluded that level of NPA has been increased year by year due to mismanagement of banking sector. To minimizing this assets, the banker should follow different criteria when the banker going to sanction a loan for a customer. The banker should get both the formal and informal information about the customer from various sources i.e. knows the goodwill of the customer. If this customer had been proved that a failure to pay any loan there is no question to sanction any loan for this customer. The banker can reduced the non-performing assets in bank by using of various technologies like core banking solution in apex bank should make more reachable to all borrowers. We through that the financial institution and banks have to maintain an effective process to overcome their dues. Generally there are two reasons for overdue the first is that their attitude and approach towards financing and recovery particularly of SMEs and the second one is the lack of full knowledge about the law and practice of banking the violation of RBI directives through their circulation. The banki8ng and financial institution should follow this rules and regulation or circulars that have been provided by the RBI and other regulation body for the banking and financial sectors. According to Mr. VOL. 3, ISSUE 12 (December 2014) 19

5 Raghuram Rajan, economic policy makers require an enormous dose of humility, openness to various alternative (including the possibility that they might be wrong) and a willingness to experiment. We have to improve the efficient of the recovery system especially at a time of economic uncertainty like the present.recovery should be focused on efficiency and fairness presenting the value of underlying assets and jobs where possible, even while redeploying unviable assets to new uses and compensating fairly. All this should be done while ensuring that contractual priorities are met. The system has to be tolerant of genuine difficulties while coming down on mismanagement or fraud. REFERENCES 1. Baiju, S. and Tharril, G.S. (2000), Performance Banks with Non-performing Assets: An Analysis of NPAs, Yojna, March 2000, PP Chaitanya V Krishna (2004). Causes of Non-performing Assets in Public Sector Banks. Economic Research, 17 (1): Ghosh, Debarshi and Ghosh, Sukanya (2011) Management of Non-Performing Assets in Public Sector Banks: Evidence from India International Conference on Management, pp Non-Performing Assets OF Indian Public, Private and Foreign Sector Banks: an empirical study, ICFAI journal of bank management. 5. Polices and Perspective of NPA Reduction in Public Sector Banks to the Indian banks Association, Mumbai. 6. RBI report on Trend and progress of banks in India (2008 to 2013). 7. Rao k Sambasiva,Rao Y V and Phani Kumer k, Management of non-performing assets in Indian banks a qualitative analysis IIM journal.vol 1 no 1 pp July December Satyanarayana, K. & Subrahmanyam, G. (2000), Anatomy of NPAs of Commercial Banks, Applied Finance, Volume 6, No.3, July, 2000, pp Srinivas K T, A study on non-performing assets of commercial banks in India, journal of research in Management and Technology, Vol-ii December VOL. 3, ISSUE 12 (December 2014) 20