NON PERFORMING ASSETS: A COMPARATIVE STUDY ON STATE BANK OF INDIA AND PUNJAB NATIONAL BANK SHIVANI VAID Assistant Professor, Department of Commerce, St. Bede s College, Shimla, Himachal Pradesh ABSTRACT Non- performing assets (NPA) are the assets that are now not in a position to generate revenue for the firm. In other words it means the non recovery of the principle amount given as a loan to the customers along with its interest. This default in repaying the loan amount back within a certain period of time is termed as non- performing assets. It is considered as one the parameters to judge how strong any business is financially. If there are high amount of NPA present in the accounts of the business then it is an indication that they are not able to recover the loan amount back in time and that the debt recovery system is not strong eno ugh which will increase the bad debts of the company. The presence of NPA is a serious threat for the organisation if not managed properly. The present study is an attempt to study the trend of non-performing assets of State Bank of India and Punjab National Bank over past five years and its impact on profitability. For this purpose the annual reports of respective banks of years 2012 till 2016 have been used. KEYWORDS Non-performing assets, Profitability, Debt Recovery Tribunal, Bad Debts. INTRODUCTION Business is involved in the never ending activity of accepting the deposits from the public and lending the loans to the customers. Lending brings along with it a high degree of risk of non recovery of principle amount. The loans and advances given to the customers are the assets of the business. And if in case any customer fails to repay the loan amount within the stipulated period of time then that sum becomes a non-performing asset for the firm, means now the asset won t perform well and will not generate any revenue for the business. As a result bad debts will increase and the overall growth of the business will be hampered. The presence of non-performing assets can be found more in public sector banks as compared to the private sectors as the recovery policies in the public sector is more liberal as compared to in the private sector. There are two types of NPA, gross and net. Gross NPA simply refers to the sum total of all the NPA s of the bank. On the other hand Net NPA refers to the subtraction of any kind of provisions from the total bad debts incurred. Every organisation takes steps to avoid the situation of occurrence of NPA and if in case they occur then they use various techniques in order to recover the amount. For this a Debt Recovery Tribunal is set in every bank whose work is to keep a track on the NPA s and then also recover the due amount. The present paper is an attempt to make a comparison of the trend of nonperforming assets between State Bank of India and Punjab National Bank over past five years. 5
REVIEW OF LITERATURE According to Dr. D. Ganesan and R. Santhanakrishnan (2013) the banks profitability can be reduced only by effective management of NPAs. The NPAs of SBI has been continuously increasing for over a decade but as the operations are more for SBI it is able to manage the profits. But still the remedial measures are to be specified to control NPAs 1. Sameer & Deepa (2013) expresses their opinion based on their study that the incidence of NPAs is affecting both the banks and financial institutions psychologically and financially. The willful defaulters should be identified and treated well to recollect the funds 2. According to Rajesh Parmer (2014) managing NPAs is a daunting task for every bank in the financial sector. NPAs affect the position and performance of the banks in many dimensions. The NPAs are mainly because of willful defaulters, ill Processing of loans etc 3. OBJECTIVES The present study has the following objectives: 1. To examine the NPA trends of State Bank of India and Punjab National Bank for past five years. 2. To investigate the impact of NPA on profitability of SBI and PNB. 3. To list the causes of the occurrence of NPA in both the banks. RESEARCH METHODOLOGY The present paper is a result of extensive literature survey and secondary data has been collected from various websites, journals, research paper so as to get exact statistics regarding the Non-Performing Assets in both the banks from the year March 2012 till March 2016. CLASSIFICATION OF ASSETS As per RBI norms all the commercial banks must classify the assets into different categories keeping in mind their period of non performance. The provision need not be followed by any regional rural bank (RRB). The assets can be categorised into four heads: 1. Standard Assets: are the assets which do not carry any kind of risk for the business and hence are considered to be performing in nature. 2. Substandard Assets: a sub standard asset is one which has remained non performing equal to a period of 12 months or less, with effect from 31 March, 2005. Such assets fall under the category of being suspicious in nature and as soon as they are identified, the business takes steps in order to recover them and avoid their being converted into a non performing asset. 3. Doubtful Assets: any asset that had remained in the category of Sub standard assets for more than a period of 12 months is termed as a doubtful asset. It means that the business doubts such asset to be converted sooner or later into a NPA. Such assets raise the question on the liquidity position of the banks. 4. Loss Assets: these are the assets on whom the loss has been identified by the internal or external auditors and by the inspectors of RBI but the said amount has not been written off. Loss asset is irrecoverable in nature and hence cannot be classified as a bankable asset or an asset that yields return to the business. REASONS FOR RISE IN NON PERFORMING ASSETS It is very much obvious that none of the assets in converted into a NPA within a day. It is a slow process which involves various reasons that convert a performing asset in a non performing asset. Every asset gives number of signals to the organisation before it actually falls under the category of NPA. NPA s arise due to various reasons either due to the fault on the part of the lenders or on the part of the borrowers or sometimes due to some external uncontrollable factors. But whatever the cause may be every asset gives some signals in advance under early alert system and then the organisations should take steps to prevent any kind of loss that might arise in the coming future. There are mainly two types of factors that affect the occurrence of NPA: 1. Internal Factors: these are the factors that are present inside the organisation. It means that the assets are converted into NPA due to the faults present within the organisation and defects in the working of the system. Such factors can be easily changed and corrective actions can be taken. Some of the internal factors are: 6
a) Defective lending process: one of the primary functions of any bank is to lend the deposits to the customers for short as well as long term. Before granting loans the bank should check the creditworthiness of the customers and sanction the loan amount accordingly. Banks follow three different principles of safety, liquidity and profitability and if any principle is compromised upon, then NPA will be created as the customers might default in returning the loan amount. b) Poor SWOT analysis: banks if are involved in weak analysis of their strengths, weaknesses, opportunity and threat then it can result into creation of NPA for the banks. c) Poor credit appraisal system: improper credit appraisal leads to giving out loans to those who are not in a condition to pay back the loan amount as a result the NPA level increases. 2. External Factors: the factors which are beyond the control of the organisation and have a strong influence on the increase in NPA levels are termed as external factors. Some of the external factors are: a) Ineffective recovery tribunal: number of debt recovery tribunals has been set up by the government of India which work for recovering the loan amount from the defaulters. But due to inefficient working of the tribunals lots of money gets blocked with the clients and could not be recovered on time. b) Industrial Sickness: due to the ever changing external environment in the form of change in government policies, inefficient management, lack of resources, changing government etc sometimes industrial units face downfall and face financial crises. In such a situation the banks from whom such industries has taken the loan have to face the effect of financial crunch as a result NPA increases. c) Government policies: there are a number of government policies which keep on changing from time to time such as excise duty changes, import duty changes etc. All such changes in the regulatory framework lead to the financial crises among business houses as a result they become incapable to repay the loan amount hence rise in NPA levels for banks. DATA ANALYSIS Table 1: Gross NPA of SBI Gross NPA (Cr.) 39,676.46 51,189.39 61,605.35 56,725.34 98,172.80 % of Gross NPA 4.44 4.75 4.95 4.25 6.50 (Source: http://www.moneycontrol.com/financials/statebankindia/results/yearly/sbi#sbi) Table 1 indicates the gross NPA of SBI from 2012 till 2016. An increase in the amount of non- performing assets can be seen till 2014 followed by a slight decline by Rs. 4880.01by the end of year 2015. It further increased and reached to the amount of Rs. 98,172.80 till March 2016. Table 2: Net NPA of SBI Net NPA (Cr.) 15,818.85 21,956.48 31,096.07 27,590.58 55,807.02 % of Net NPA 1.82 2.10 2.57 2.12 3.81 (Source: http://www.moneycontrol.com/financials/statebankindia/results/yearly/sbi#sbi) Table 2 indicates the net NPA of SBI from 2012 till 2016. The figures indicate a rise in the amount till 2014 depicting the inconsistency in debt recovery by the bank. In the year 2015 due to efforts taken up for recovery the Net NPA fell to Rs 27,590.58. By the end of March 2016 net NPA amounts to Rs 55,807.02 i.e., 3.81%. Table 3: Gross NPA of PNB Gross NPA (Cr.) 8,719.62 13,465.79 18,880.06 25,694.86 55,818.33 % of Gross NPA 2.93 4.27 5.25 6.55 12.90 (Source:http://www.moneycontrol.com/financials/punjabnationalbank/results/yearly/PNB05) Table 3 indicates the gross NPA of PNB from 2012 till 2016. An increase in the amount of non- performing assets can be seen right from the very beginning starting from 2.93% in the year 2012 till 12.90% in the year 2016. It reveals that the debt recovery system of the bank was not efficient and successful enough to recover the principal as well as interest amount from its clients as a result the burden on the bank kept on increasing. 7
Table 4: Net NPA of PNB Net NPA (Cr.) 4,454.23 7,236.50 9,916.99 15,396.50 35,422.57 % of Net NPA 1.52 2.35 2.85 4.06 8.61 (Source:http://www.moneycontrol.com/financials/punjabnationalbank/results/yearly/PNB05) Table 4 indicates the net NPA of PNB from 2012 till 2016. The figures indicate a constant rise in the amount of NPA depicting the inconsistency in debt recovery by the bank. By the end of March 2016 net NPA amounts to Rs 35,422.57 i.e., 8.61%. It reveals that apart from the provisions set aside, bank was not able to recover much amount from its clients which led to a drastic increase in the percentage of net NPA from 1.52% in 2012 to 8.61% in 2016. Table 5: Comparative Evaluation of NPA over the years Years/ Net NPA of SBI Net NPA of PNB % of Net NPA of SBI % of Net NPA of PNB Particulars (Cr.) (Cr.) 2012 15,818.85 4,454.23 1.82 1.52 2013 21,956.48 7,236.50 2.10 2.35 2014 31,096.07 9,916.99 2.57 2.85 2015 27,590.58 15,396.50 2.12 4.06 2016 55,807.02 35,422.57 3.81 8.61 Table 5 indicates the net NPA of SBI and PNB since 2012 along with the percentage. The figures show a fluctuating trend in the NPA levels in SBI as well as PNB. The percentage increase in Net NPA of PNB is much more as compared to that of SBI. Percentage of net NPA of SBI fell from 2.57% in 2014 to 2.12% in 2015 and on the other hand there was an increase in NPA levels to 4.06% in 2015 from 2.85% in 2014. This reveals that SBI made efforts for debt recovery whereas the debt recovery system at PNB was not too effective and could not recover more from its doubtful assets. Looking at the percentage for the year 2016, SBI faced losses in recovering the amounts and as a result the percentage of NPA increased from 2.12% in 2015 to 3.81% in 2016. PNB also was ineffective in recovery process hence NPA rose to 8.61% till March 2016. The increase in NPA was much more in PNB as compared to that of SBI i.e. 4.55% as compared to 1.69%. IMPACT OF NPA ON PROFITABILITY Non- Performing assets is a reason of concern for the entire banking system and for the investors, shareholders, depositors, lenders etc. Non Performing assets arise when there was any fault on the part of the banks while sanctioning loans to the clients and at the time of returning the principal and interest amount the clients default in it. It creates a bad debt for the banks and the assets which do not yield anything to the bank are known as non-performing assets. The existence of non- performing assets has a major impact on the working of the business and on the stakeholders attached to it. It adversely affects the profitability, the shareholder s wealth, confidence of general public and the overall goodwill of the business. The following section makes a comparison between the NPA levels of PNB and SBI and correlates them with the Net profits. Table 6: Comparative evaluation of Net NPA and Net Profit of SBI Years Net NPA (Cr.) Net Profit (Cr.) 2012 15,818.85 11,707.29 2013 21,956.48 14,104.98 2014 31,096.07 10,891.17 2015 27,590.58 13,101.57 2016 55,807.02 9,950.65 (Source: http://www.moneycontrol.com/stocks/company_info/print_main.php) Table 6 makes a comparison between Net NPA and Net Profits of State bank of India from 2012 to 2016. Figures reveal that with an increase in the Net NPA the profitability decreases as seen for the years 2013 and 2014. Net NPA rose to Rs 31,096.07 in the year 2014 from 21,956.48 Rs in 2013, which led to a fall in profits to Rs 10,891.17 in 2014. As for the year 2016 there was a rise in NPA level to Rs 55,807.02 which led to a fall in profits from Rs 13,101.57 to Rs 9,950.65. 8
Table 7: Comparative evaluation of Net NPA and Net Profit of PNB Years Net NPA (Cr.) Net Profit (Cr.) 2012 4,454.23 4884.20 2013 7,236.50 4747.67 2014 9,916.99 3342.58 2015 15,396.50 3061.58 2016 35,422.57 (3974.40) (Source: http://www.moneycontrol.com/stocks/company_info/print_main.php) Table 7 makes a comparison between Net NPA and Net Profits of Punjab National Bank from 2012 to 2016. Figures reveal that Net NPA s for Punjab National Bank have been increasing since 2012, with a major increase in the year 2016. As the NPA amount keeps on increasing, simultaneously the net profits keeps on declining. A massive increase in Net NPA from the year 2015 to 2016 witnessed a downfall in profits of the bank to an extent that the figures touched negative side and PNB went into a loss of Rs 3974.40. CONCLUSION The present study comes to a conclusion that non- performing assets is a biggest challenge faced by both Punjab National Bank and State Bank of India as it leads to downfall in liquidity balance of the banks and creates bad debts on them. Profitability is being affected due to the fluctuations in NPA levels over the years. As in the case of Punjab national bank the profitability is highly affected due to the increase in NPA levels and the losses were increased to such a level that by the end of March 2016 the profits went towards the negative lane. State bank of India too faced downfall in the level of profits but it was quite less as compared to PNB as SBI s level of NPA faced fluctuating trends of rise and fall since five years unlike PNB which faced a constant fall in the NPA levels. REFERENCES 1. Dr. D. Ganesan R.Santhanakrishnan, Non-Performing Assets: A Study Of State Bank Of India Asia Pacific Journal of Research, Volume: I, Issue: X, October 2013. 2. Samir & Deepa Kamra, A Comparative Analysis of Non- Performing Assets (NPAs) of Selected Commercial Banks in India International Journal of Management, Vol. 3, No. 1, June 2013. 3. Rajeshwari Parmar, Non Performing Assets (NPAs): A Comparative Analysis of SBI and ICICI Bank International Journal for Research in Management and Pharmacy, Vol. 3, Issue 3, April 2014 (IJRMP) ISSN: 2320-0901 9