ISSN: 2349-7637 (Online) (RHIMRJ) Research Paper Available online at: www.rhimrj.com A Study on Recent Trend of Non-Performing Assets in Scheduled Commercial Banks of India Tushar Mehta 1st Research Scholar, Dept of Commerce, Centre for research and development, Rai University Ahmedabad, Gujarat (India) Dr. Nilam Panchal 2nd B.K. School of Business Management, Gujarat university, Ahmedabad, Gujarat (India) Abstract: After the 1991 reforms of globalization, liberalization and privatization the banking sector achieved the sky high growth within merely two decades. The banking sector of any country is said to be the base of its development and its economy. Therefore the appropriate and stable growth of the banks in the country is most important. The banking business generally depends on investments and lending. The majority of the bank s earning comes from investment and lending. The lending is the core function of banks. Banks are said to be a bridge between the deficit sectors and the surplus sectors. Bank lends out of its valuable deposits received from the surplus sector (household savings) to various deficit sectors i.e. to industries, agricultural sectors, housing, etc. as per the requirement. But the problem being faced by the banks in lending to these sectors is the problem of increasing NPA s. To simplify the definition, NPA s is nothing but the unpaid interest or principal amount to the bank by the borrower. The researcher therefore aim to do the suitable research on the concept of NPA s as well as the paper aims to bring in light the actual position and trend of scheduled commercial banks in the last 13 years i.e. from 2001-2002 to 2013-2014. Keywords: Non-performing assets, schedule commercial banks, Advances, Net profit, Gross and Net NPA s. I. INTRODUCTION Banks play a major role as an intermediary which generally transfers funds from the surplus sector like household to the deficit sectors like governments and corporates. Thus banks are the considered to be the most important element in the economic development of nation. The banking business generally consists of accepting deposits and lending in the form of loans to the needed sector/individual. The profitability of banking business largely depends on the interest on the loan advanced by the banks during the period. Things are good till the repayment of the principle amount and interest done punctually i.e. time to time. But that is not the case, there are some borrowers who are unable to pay the principal amount or interest or both on time/never causing the NPAs for the banks. Last decade has shown a significant increase in the advance by banks and along with the increase in bank advances, the level of NPA s are also rising rapidly. This directly affects the liquidity and profitability of banks. There are certain norms and guidelines to recover NPA s suggested by the RBI but to some extent it has proved inefficient to recover the NPA S. II. LITERATURE REVIEWS Shrinivas K T (2013) presented a research paper on A STUDY ON NPA OF COMMERCIAL BANKS, aims at understanding the idea of NPA s along with its level in commercial banks and reasons behind assets becoming non-performing and to offer recommendations NPA s can reduce the earning capacity of assets, effect on returns and increase the additional cost to bank. The paper also discuss about the impact of NPA s on profitability of banks as well as various steps to reduce it. The paper general considered the impact and causes of NPA on banks limited to commercial banks within period of 1996-97 to 2011-2012. The main purpose of the study is to find out the reasons behind the increasing level of NPAs and to bring out the best available solution to reduce the NPA s in bank. The paper conclude that the bank should adopt certain measure before lending money, such as avoid sanctioning loan to non-creditworthy borrowers, should monitor the borrower to assure the proper utilization of money and to keep reports about goodwill of the customer as well as using the latest technology like core banking solution to keep records can also help the bank to reduce the level of NPAs. Sonia Narul and Monika Singhal (2014) in their study Empirical study on non performing assets of banks. Considers NPA as a virus which affect the banking sector. It affects the liquidity and profitability, in addition it posing as a hazard on quality of assets and the existence of banks. The study based on secondary data (annual reports) of Punjab national bank for the period of six years i.e. 2006-2007 to 2011-2012. Paper tested the relation between net profit and net NPA s of PNB with the help of coefficient correlation. The finding shows that there is a positive relation between NPAs and net profit which means that if profitability increase NPA also increase which is not good. The reason behind this relation is due to wrong selection of clients by banks which results in lack of sufficient fund to lend to new clients/customers. The paper suggest that bank should do pre-sanctioned and postsanctioned evaluations to control level of NPA for which a proper management is needed on the bank side as well as proper selection of borrowers and continues follow up is also necessary to get regular payments. B.Selvarajan & Dr. G. Vadivalagan (2013) had analayed in their research paper title A Study on Management of Non Performing Assets in Priority Sector reference to Indian Bank and Public Sector Banks (PSBs) is to know the NPA s in Indian 2015, RHIMRJ, All Rights Reserved Page 1 of 5 ISSN: 2349-7637 (Online)
bank (Tamil Nadu) under the priority sector as well as to compare it to public sector banks as whole and to provide suggestion to manage NPAs effectively.. The period of the study is 2001-2002 to 2010-2011 i.e. of 10 years. Primary data from borrower in the form of questionnaire and secondary data like annual reports of Indian bank and from RBI websites were collected for the same. The paper shows that the growth of Indian banks lending to priority sector is more than that of public sector banks as whole. Still it s been observed that Indian bank is still not able to manage NPAs efficiently. The Indian bank must need to take steps to recover its increasing NPAs in priority sector. The Paper also advices bank to take timely action for the future growth of the bank. Dr. Ravindra N. Sontakke and Mr. Chandan Tiwari (2013) in their paper emphasises on conceptual study of nonperforming assets in banking sector. The paper Trend Analysis of Non-Performing Asset in Scheduled Commercial Banks in India highlights the trends of NPAs(Gross as well as Net NPAs) in scheduled commercial banks in India for the period of five years i.e. (2008-2012).it also suggest measures to manage NPAs in banks. The paper finds that the main reason behind increasing NPAs is inefficient recovery,defective lending process, poor quality management, wilful default, adverse business environment, industrial sickness etc. the study shows an increase in gross as well as net NPAs in schedule commercial banks during the period of study.i.e. In 2008 gross NPAs was 2.3% while it increases to 3.1% in 2012. On other hand the net NPAs in 2008 was 1% and increased to 1.4% in 2012. Regular follow ups, personal visits and close monitoring can help banks to reduce NPAs. As a curative measure banks can also choose compromise settlement or onetime settlement, Debt recovery tribunal etc. Banks should also try to restructure loans taking into account the genuine difficulty of the borrower. Banks are largely depending on SARFAESI ACT for their management of NPAs. III. MEANING OF NON-PERFORMING ASSETS To make it very easy, NPA s can be simply defined as an asset that have stop generating income for the banks. As per the revised assets classification norm by the RBI, a non-performing asset (NPA) is a loan or an advance where: Interest and /or instalment of principal remain overdue for a period of more than 90 Days in respect of a term Loan or The account remains 'out of order' for a period of more than 90 days, in respect of an overdraft/ cash credit (OD/CC) or The bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted, the instalment of principal or Interest thereon remains overdue for two crop seasons for short duration crops or the instalment of principal or Interest thereon remains overdue for one crop seasons for long duration crops, Any amount to be received remains overdue for a period of more than 90 days in respect of other accounts. IV. CLASSIFICATION OF ASSETS The Non-Performing Assets are classified in to following three types with effect from March 31, 2005, Substandard Assets: A substandard asset would be one, which has remained NPA for a period less than or equal to 12 months. A general provision of 15 % on total outstanding should be made and the unsecured exposures which are identified as substandard would attract additional provision of 10 per cent, i.e., a total of 25 per cent on the outstanding balance. Doubtful Assets: An asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months. 100 % of the extent to which the advance is not covered by the realizable value of the security to which the bank has a valid recourse and the realizable value is estimated on a realistic basis. In regard to the secured portion, provision may be at the rates ranging from 25 % to 100 % of the secured portion depending upon the period for which the asset has remained doubtful Loss Assets: A loss asset is one 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. Loss assets should be written off. If loss assets are permitted to remain in the books for any reason, 100 percent of the outstanding should be provided for. The main objectives of this paper are as follows: V. OBJECTIVES 1. To understand the concept of Non-Performing Assets. 2. To study the trend of NPA s of scheduled commercial banks in India. 3. To bring in light the Gross and Net NPA of scheduled commercial banks in India during the period i.e. 2001-2002 to 2013-2014 4. To provide suggestion based on this study. 2015, RHIMRJ, All Rights Reserved Page 2 of 5 ISSN: 2349-7637 (Online)
VI. RESEARCH METHODOLOGY Research methodology is the most important element of the research paper. It shows how the research work is carried on and supports the finding and conclusion of the researcher. My research methodology includes collecting data from the various sources. i.e. secondary data from annual reports of the respective banks, reputed journals, articles and from the RBI. To compare and understand the findings, paper includes some graphs and tables. The data has been collected for the period of thirteen years i.e. from 2001-2002 to 2013-2014. VII. DISCUSSION AND FINDING In India the banking sector is classified in two parts. 1. Scheduled banks 2. Non-scheduled banks Meaning of Schedule Banks: As per the RBI act 1934, the banks which are listed in the scheduled-ii of this act are called scheduled commercial banks. As per the RBI report on profiles of banks 2012-2013 there are total 89 scheduled commercial banks in India having 92114 offices across India which includes private, public and foreign banks. during the year 2012-2013 the total deposit of the scheduled commercial banks are 74295324 million rupees while the total advance by the banks are around 58797025 million rupees. The following table shows the gross advance and gross NPA amount as well as Gross NPA percentage to advances of the schedule commercial banks in India during the period of 13 years that is from 2001-2002 to 2013-2014. The gross NPA s percentage shows almost huge decline during the selected time period. The percentage of Gross NPA to advances during the year 2001-2002 was around 10.4 % which is at alarming stage has been decreased to 3.8 % in year 2013-2014. But on the other hand the advances by the bank have also increased to the huge amount. The gross advance during 2001-2002 was 6809.58 and increased to 68757.48 in 2013-2014. It increased to near about 10 times. Table-1 Year Gross Advance Gross NPA Amount Gross NPA Percentage 2001-2002 6809.58 708.61 10.4 2002-2003 7780.43 687.17 8.8 2003-2004 9020.26 648.12 7.2 2004-2005 11526.82 593.73 5.2 2005-2006 15513.78 510.97 3.3 2006-2007 20125.10 504.86 2.5 2007-2008 25078.85 563.09 2.3 2008-2009 30382.54 683.28 2.3 2009-2010 35449.65 846.98 2.4 2010-2011 40120.79 979.00 2.5 2011-2012 46655.44 1423.00 3.1 2012-2013 59882.79 1931.94 3.2 2013-2014 68757.48 2641.95 3.8 Source: RBI The following table show the Net advance and net NPA along with Net NPA percentage to net advances during the period of 13 years that is from year 2001-2002 to year 2013-2014. The data shows decreasing trend of Net NPA percentage during the selected time period. In 2001-2002 the net NPA s was around 5.5 % while it comes down to 2.1 % in 2013-2014. Table-2 Year Net Advance Net NPA Amount Net NPA Percentage 2001-2002 6458.59 355.54 5.5 2002-2003 7404.73 296.92 4.0 2003-2004 8626.43 243.96 2.8 2004-2005 11156.63 217.54 2.0 2005-2006 15168.11 185.43 1.2 2006-2007 19812.37 201.01 1.0 2007-2008 24769.36 247.30 1.0 2008-2009 29999.24 315.64 1.1 2009-2010 34970.92 387.23 1.1 2010-2011 42987.04 417.00 1.1 2011-2012 50746.00 649.00 1.4 2012-2013 58797.03 986 1.7 2013-2014 67352.32 1426.57 2.1 Source: RBI 2015, RHIMRJ, All Rights Reserved Page 3 of 5 ISSN: 2349-7637 (Online)
Notes: 1. Data for 2013-14 are provisional. 3. Data on Scheduled Commercial Banks & Public Sector Banks for 2004-05 include the impact of conversion of a nonbanking entity into a banking entity. Figure-1 Gross and Net NPA (Amount in millions) Analysis: The above graph represents the gross and net NPA amount of scheduled commercial banks. The x-axis represents the time period of the study. i.e. 13 years from 2001-2002 to 2013-2014. While the y-axis represents the NPA amount. The above graph shows that during the 13 year period the NPA level has increase significantly along with the advances. The gross NPA amount has touched almost 2650 level which is at the alarming situation. While the net NPA amount also shows increase during the time period i.e. it has increased from 355.54 to 1426.57 the value almost increased 5 times. Which is again alarming situation for the banks. Figure-2 Gross and Net NPA s (Percentage) Analysis: The graph indicates the Gross and Net NPA percentages to advances. The x-axis represents the time period that is of 13 years from 2001-2002 to 2013-2014. While the y-axis represents the percentage of the NPA to advances. The graph shows the downward trend during the time period. The level of NPA percentage to advances has shown a significant decrease. The gross NPA s percentage was at around 10.4 % has come down to 3.8% in 2013-2014. While the net NPA s was at 5.5% in 2001-2002 come down to 2.1% in 2013-2014. 2015, RHIMRJ, All Rights Reserved Page 4 of 5 ISSN: 2349-7637 (Online)
VIII. CONCLUSION At the end of this paper we can conclude that the NPAs in scheduled commercial banks should be manage more effectively and efficiently. Government still needs to review the rules and regulations for the NPAs as well as to tighten the norms for stopping the assets getting non-performing. High level of NPAs can hamper the economy very adversely. Banks should adopt certain strict norm to control the Mounting NPAs yet the other side of the coin is that the risk of assets getting NPA s is unavoidable as the core function of the banks is to lend. However during the last decade as mentioned above the study shows some improvement and more awareness by banks in managing the NPAs as it. REFERENCES 1. B.Selvarajan & Dr. G. Vadivalagan (2013), A Study on Management of Non Performing Assets in Priority Sector reference to Indian Bank and Public Sector Banks (PSBs), Global Journal of Management and Business Research Volume 13 Issue 1 Version 1.0, PP 101-112. 2. Chandan chatterjee ; Jeet Mukherji; Dr Ratan Das (2012) MANAGEMENT OF NON PERFORMING ASSETS - A CURRENT SCENARIO IRJC Vol. 1 Issue 11, Nov-2012. 3. Dr Ravindra N. Sontakke; Mr Chandan Tiwari; Trend Analysis of Non Performing Asset in Scheduled Commercial Banks in India, IJAIEM (2013) 4. Dr Sonia Narul; Monika single; Empirical Study on Non Performing Assets of Bank, IJARCSMS Vol.2, Issue 1, Jan 2014. 5. Shrinivas, K.T. (2013), A STUDY ON NON-PERFORMING ASSETS OF COMMERCIAL BANKS IN INDIA, December 2013, PP 61-68. 6. Various issues of Reports on trend and progress of banking in India 7. http://rbi.org.in 8. http://iba.org.in 2015, RHIMRJ, All Rights Reserved Page 5 of 5 ISSN: 2349-7637 (Online)