IMPACT OF NPA ON DIFFERENT SECTORS- A COMPARATIVE STUDY ON SELECTED BANKS

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1 IMPACT OF NPA ON DIFFERENT SECTORS- A COMPARATIVE STUDY ON SELECTED BANKS PREETHA.C Ph.D Research Scholar, Department of Commerce, Bharathiar University, Coimbatore ABSTRACT Finance is the life blood of trade, commerce and industry and the banking acts as a back bone for the modern business. Through mobilization of resources and their better allocation commercial banks play an important role in the development process of a nation. The efficiency of a bank is not only based on its profitability but also on the quality of asset it holds. In the preliberalization period the banks could not differentiate between quality assets and bad assets as there were no prudential norms or better accounting practices. This resulted in an alarming level of Non- Performing Assets (NPAs) in the bank s balance sheet. The NPAs erode the profits of the banks, reduce their income, limit the recycling of funds and thus affects the health of the banking industry. Hence this has initiated the study to analyse the wise impact of NPA and the results were tabulated. Introduction Finance is the life blood of trade, commerce and industry and the banking acts as a back bone for the modern business. Through mobilization of resources and their better allocation commercial banks play an important role in the development process of a nation. The efficiency of a bank is not only based on its profitability but also on the quality of asset it holds. In the preliberalization period the banks could not differentiate between quality assets and bad assets as there were no prudential norms or better accounting practices. This resulted in an alarming level of Non- Performing Assets (NPAs) in the bank s balance sheet. An asset when it ceases to generate income for the bank is termed as a Non Performing Asset (NPA). The NPAs erode the profits of the banks, reduce their income, limit the recycling of funds and thus affects the health of the banking industry. NPAs results from many internal and external causes. It cannot be completely eliminated from the banking, but it can be controlled and brought in to acceptable limits. Though both public and private banks try to reduce their NPAs in their balance sheets, there is no unanimity in the policies followed to reduce this problem. SECTOR WISE NPA OF BANKS Banks lends to various s they are grouped as priority and non-priority s. The priority activities have been given adequate financial assistance through Banks. Among the 20 point programmes announced by the Prime Minister, Mrs. Indira Gandhi, poverty alleviation, creation of employment opportunities, promotion of self employment, protection and promotion of village and cottage industries, encouraging entrepreneurs and similar socio economic development programmes were given top priority. Thus various employment generation activities, Agricultural development activities and activities related to small Scale industries have been classified under priority. In other words, some areas of fields in a country, depending on its economic condition or government interest are called Priority Sectors, i.e. industry and agriculture. These may further be sub-divided. Banks are directed by the central bank of the country that loans must be given on reduced rates of interest with discounts to promote these fields; such lending is called Prime Sector Lending. Banks lends to various s they are grouped as 33 icmrrjournal@gmail.com

2 Priority Sector Non Priority Sector Agricultural Small Scale Others Non priority public The Analysis shows the Average lending to various s of all the public banks, private banks and the lending of the selected public and private banks for the study from to Objectives of the study To assess the impact of NPAs in different s of public and private banks. Methodology The study is descriptive in nature. Data and sources of data The present study is based on secondary data. Data for this study are obtained from annual reports and accounts of public and private banks, annual reports published by RBI (Reserve Bank of India) and from Indian Banks Association (IBA) year books and annual issues. Period of the study The study covers a period of ten years from the accounting year to Sampling Design There are 27 public banks and 22 private banks in India. In each, three banks from the high performing group, three from the average performing group and three from the low performing group based on their profitability has been selected using cluster sampling. From the Public Sector Dena Bank, Uco Bank, Vijaya Bank, Indian Bank, Bank of India, Canara Bank, Bank of Baroda, Punjab National Bank, State Bank of India and from the Private Sector City Union Bank, Lakshmi Vilas Bank, Karnataka Bank, ING Vysya Bank, Karur Vysya Bank, South Indian Bank, Federal Bank, HDFC Bank and Axis Bank are chosen for the study. NPA provided to agricultural The following table 1 states the NPA distribution to different s by the all public and private banks. Further NPA distribution to the different s by the selected public and private banks were also portrayed in the table icmrrjournal@gmail.com

3 Table 1 Percentage of NPA (Average) provided to different s Small scale Priority Nonpriority Bank Agricultural Other AllPublicSector AllPrivateSector Dena Bank UCO Bank Vijaya Bank Indian Bank Bank of India Canara Bank Bank of Baroda Punjab National Bank SBI Bank City Union Bank Lakshmi Vilas Karnataka Bank ING VYSYA KarurVysya South Indian Bank Federal Bank HDFC Bank Axis Bank Agricultural : The highest mean value of NPA of Agricultural scale is found in public banks (16.84). In case of the selected public banks highest mean value of is found in Punjab National Bank which is followed by Punjab National Bank with 28.92, Bank of India with and so on. In case of the selected private banks highest mean value of is found in AXIS bank, which is followed by Karnataka Bank with 11.3, South Indian Bank with 6.95 and so on Small scale : The highest mean value of NPA of Small scale is found in public banks (17.03). In case of public banks highest mean value of is found in Indian Bank which is followed by Punjab National Bank with 28.92, Bank of India with and so on. In case of private banks highest mean value of is found in Karurvysya bank, which is followed by Karnataka Bank with 20.35, South Indian Bank with and so on Other : The highest mean value of NPA of other is found in public banks (19.51). In case of the selected public banks highest mean value of is found in Indian Bank which 35 icmrrjournal@gmail.com

4 is followed by Deena Bank with 28.92, Indian Bank with and so on. In case of the selected private banks highest mean value of is found in federal bank, which is followed by South Indian Bank with 21.29, Lakshmi Vilas Bank with and so on Priority : The highest mean value of NPA of Private is found in public banks (53.39). In case of the selected public banks highest mean value of is found in Indian Bank which is followed by VijayaBank with 65.33, Bank of India with and so on. In case of the selected private banks highest mean value of is found in Federal bank, which is followed by South Indian Bank with 48.91, Karnataka Bank with 46.03and so on Non- priority : The highest mean value of NPA of Small scale is found in public banks (17.03). In case of the selected public banks highest mean value of is found in Indian Bank which is followed by Punjab National Bank with 28.92, Bank of India with and so on. In case of the selected private banks highest mean value of is found in Karurvysya bank, which is followed by Karnataka Bank with 20.35, South Indian Bank with and so on. Conclusion From the analysis it is clear that the impact of NPA is greater in priority when compared with the non-priority. This may be due to more concessions directed towards industry and agriculture provided by the government. Hence steps should be taken by the government to analyse the subsidies granted towards the priority s and its usage. References Bhide, M.G., A Prasad, and S. Ghosh, (2002), Banking Sector Reform: A Critical Overview, Economic and Political Weekly, February. Chakraborthy K.C.(2005) Management of NPAs: Trends and Challenges, Chartered Financial Analyst, Indian Banking Special, Oct 2005, pp Das, Abhiman (1999), Efficiency of Public Sector Banks; An Application of Data Envelopment Model Prajnan, Vol, 28, No.2, September. Dr.Ashok Kurana and Dr.Mandeep Singh, (2010) NPA Management: A study of New Private Sector Banks in India, Indian Journal of Finance, Sept,2010, pp Jaya Agnani,(2010) NPAs in Banks: A Syndrome Probing Remedy, International Journal of Research in Commerce and Management, Vol. No.1, IssueNo.5, Sept, 2010, pp Jigar J. Soni (2009) Comparative Analysis of Non-performing Assets of Private and Public Banks in India Institute of Business management and Research, Ahmedabad. Pp.102,109. McGoven John (1998) why bad loans happen to good banks, The Journal of Commercial Lending, Philadelphia: Feb 1993 Vol 75, Issue icmrrjournal@gmail.com

5 Mor, Nachiket and Bhavna Sharma, (2003), Rooting Out Non-Performing Assets, Fifth Annual Conference on Money and Finance in the Indian Economy Indira Gandhi Institute of Development Research (IGIDR), Mumbai, Jan 30-Feb 1, Professional Banker Research Team,(2002) NPA-Ground Realities, Bank Credit Emerging Trend, Published by ICFAI, Hyderabad, P. 94,95. Radhika R.(2011), Non-performing Assets: A study of scheduled commercial banks in India, International Journal for Research in Commerce and Management, Vol.No.1,Issue No.1, May, Sardar Gujaral N.S. (2003) Asset Quality and Management of NPAs, The journal of the Indian Institute of Bankers, Vol.74, No.2, April June, 2003, pp Suresh N. and Kumar S. Anil and Gowda (2010) Credit Risk Management in Commercial Banks, CURIE Journal; Jan2010, Vol. 2 Issue 4, p72-83, 12p, 10 Charts. ISSN No icmrrjournal@gmail.com