NON-PERFORMING ASSETS (NPA) OF REGIONAL RURAL BANKS OF ASSAM: A COMPARATIVE ANALYSIS Dr. A. Ibemcha Chanu, Assistant Professor (Sr), Dept. of Commerce, Assam University, Diphu Campus, Diphu, Assam Mr. Pankaj Dey, M.Com Student (2015), Dept of Commerce, Assam University, Diphu Campus, Diphu, Assam Abstract: The rising trend of NPA among the nationalised banks of India is not only a problem for the banks but also a major concern for the economy. It not only affects the profitability of the banks but also hampers the economic development of the country. In this paper, the researchers attempt to assess the growth rate of NPAs of RRBs Assam ( LDRB and AGVB) from 2010-11 to 2013-14 but also compares the NPA recovery rate between the RRBs.The paper also analyses the growth in Gross and Net NPAs of both the banks with respect to gross and net advances of respective Banks and the growth in Gross and Net NPAs of both the banks with respect to total assets of respective banks during this period. The findings clearly reveal that that the LDRB, which operates in the hill districts of Assam, manages NPA better than AGVB during this period. The paper which is descriptive in nature is based on secondary data and the data have been extracted from the annual reports of LDRB and AGVB. Key words: NPA, profitability, LDRB. AGVB. 1. Introduction: Non Performing Assets (NPA) has always been a major concerned for all the commercial banks in India. It has been the single largest cause of irritation of the banking sector of India. The latest data reveals an alarming trend of NPAs among the nationalised banks including the largest commercial bank, the State Bank of India. Increasing NPAs at an alarming rate is a threat to the banking industry since it sends distressing signals on the sustainability of the affected banks. A high level of NPAs suggests high probability of a large number of credit defaults that affect the profitability of banks and also erodes the value of the asset. The problem of NPAs not only affects the banks but also the economy as a whole. Higher level of NPA would force the banks to charge higher PLR and PLR related interest rates. This will attract highrisk borrowers which, in turn, may result in higher level of non-performing advances in future. Mismanagement or diversion of fund is also one of the main causes of NPA (Pradhan Tanmaya 2012). According to Poongavanam.S (2011), an NPA account not only reduces profitability of banks by provisioning in the profit and loss account, but their 115 carrying cost is also d which results in excess and avoidable management attention. Apart from this, a high level of NPA also puts strain on a bank s net worth because banks are under pressure to maintain a desired level of Capital Adequacy and in the absence of comfortable profit level; banks eventually look towards their internal financial strength to fulfil the norms thereby slowly eroding the net worth. Reduced NPAs generally gives the impression that banks have strengthened their credit appraisal processes over the years and growth in NPAs involves the necessity of provisions, which bring down the overall profitability of banks. According to the RBI guideline Nonperforming Asset (NPA) means an asset in respect of which: a) interest or principal (or instalment thereof) is overdue for a period of 90 days or more from the date of acquisition or the due date as per contract between the borrower and the originator, whichever is later; b) interest or principal (or instalment thereof) is overdue for a period of 90 days or more from the date fixed for receipt thereof ; c) interest or principal (or instalment thereof) is overdue on expiry of the planning period, where no plan is formulated for realization of the assets; d) any
other receivable, if it is overdue for a period of 90 days or more in the books of the Securitization Company or Reconstruction Company. The identification of non-performing assets is done on the basis of the position as on the balance sheet date. If an account is regularised before the balance sheet date by payment of overdue amount, the account may not be treated as a non-performing asset. Now-a-days, banks are evaluated on the basis of percentages of their non-performing assets. Therefore, banks make their best possible efforts to reduce the percentages of their NPAs (Jain & Narang, 2009). In the literature, generally NPAs are divided as Gross NPA and Net NPA. Gross NPA is the amount outstanding in the borrower accounts in the books of the bank other than the interest which has been recorded and not debited to the borrower account; Net NPA is the amount of gross NPA less (1) Interest debited to borrow and not recovered & not recognized as income & kept in insurance suspense, (2) Amount of provision held in respect of NPAs & (3) Amount of claim received & not appropriated (Gupta Bratati, 2012). In this background, the paper attempts to study the rising trend of NPAs of two Regional Rural Banks of Assam which are LDRB (Langpi Dehangi Rural Bank) and AGVB (Assam Gramin Vikash Bank). The paper is organised into five parts. The first part presents the background of the paper including objectives, hypotheses, research methodology; the second part presents the review of literature and an outline of RRBs of Assam. The third part presents findings, the fourth presents the major findings and conclusion and the last part presents references. Objectives: 1. To find out the trend of NPA of LDRB (Langpi Dehangi Rural Bank) and AGVB (Assam Gramin Vikash Bank) from 2010-11 to 2013-2014. 2. To analyse the growth in Gross and Net NPAs of LDRB and AGVB with respect to gross and net advances of respective Banks from 2010-11 to 2013-2014. 116 3. To analyse the growth in Gross and Net NPAs of LDRB and AGVB with respect to total assets of respective banks from 2010-11 to 2013-14. 4. To analyse the comparative growth in the recovery rate of LDRB and AGVB during 2010-11 to 2013-14. Hypotheses: 1. There is same increasing trend of NPAs in both LDRB and AGVB during 2011-12 to 2013-14. 2. Higher growth rate in gross and net NPAs as against gross and net advances in case of LDRB but higher growth rate in gross and net NPAs as against total assets in case of AGVB. 3. There is same growth rate in the NPA recovery of LDRB and AGVB during 2010-11 to 2013-14. Research Methodology: The study is descriptive in nature. It is based on secondary data. The data have been collected from annual reports of LDRB, AGVB, RBI, books, journals and websites. For analysing the data, descriptive statistics like Tabulation and Percentage have been used. The study covers four years from 2010-11 to 2013-14. Limitations of the study: The study is restricted to only 4 years performance that is from 2010-11 to 2013-14 and the study does not analyse the causes of Non-Performing Assets of the Langpi Dehangi Rural Bank and Assam Gramin Vikash Bank. 2. Review of literature: There are number of studies about the NPAs and its possible impacts on Indian economy. Studies of Satpal (2014), Samir and Karma(2013) Chatterjee, Mukherjee and Das (2012) Rajput, Arra and Kaur (2011) reveal that NPAs not only affect the performance of credit institutions but also have a direct negative impact on economy. In the studies of Ganesan and Santhanakrishnan (2013), Gupta Bratati (2012) Sumathi Gopal (2010), it is clearly revealed that the sound financial position of a bank depends upon the recovery of loans or its level of Non-performing assets (NPAs). According to Sontakke and Tiwari (2013) NPA doesn t affect current profit but also future stream of profit, which may lead to loss of some long-term beneficial opportunity. However according to Vemula and Mahalingam (2012) in recent times, the banks have
become very cautious in extending loans, the reason being mounting non-performing assets. Research gap: From the review of literature, it is revealed that all the studies are related to its impact on banking operations, depositors, economy as a whole, etc. Whereas any study doesn t analyse about the raising trend of NPAs particularly among the RRBs. The study of NPA of RRBs of Assam that is AGVB and LDRB is not found in the existing literature. Hence, the study is an attempt to fill up the existing research gap. An outline of LDRB and AGVB Langpi Dehangi Rural Bank (LDRB), the only RRB which has been operating as the leading bank in two hill districts of Assam that is Karbi Anglong and Dima Hasao was established on 27 th January 1982 under Section 3(1) of the Regional Rural Bank Act, 1976 and sponsored by the State Bank of India. While, the Assam Gramin Vikash Bank (AGVB), the only restructured RRB (Regional Rural Bank) of the N.E Region was set up on 12th January, 2006 by amalgamating the erstwhile Pragjyotish Gaonlia Bank, Lakhimi Gaonlia Bank, Cachar Gramin Bank & Subansiri Gaonlia Bank as per the provision under Section 23(A) of RRB Act, 1976. The Bank enjoys the status of a Scheduled Bank in terms of Reserve Bank of India Notification No.PCD.CO.RRB No. 7430/03.05.100/2008-09 dated 27.01.2009. The Bank is jointly owned by the Govt. of India (50%), Govt. of Assam (15%) and United Bank of India (35%). A comparative statement of LDRB and AGVB is shown in the Table 1. Table 1: A comparative statement of LDRB and AGVB Particulars LDRB AGVB No of Districts as area of operation 2 (two) 25( twenty-five) Headquarter Diphu Guwahati No. of regional offices 1 (one) 7 (seven) No of branches 57 369 Profit earned 2011-12 INR 380877 thousand INR 663.51 thousands Profit earned 2012-13 INR1078003 thousand Rs 669.17 thousands Profit earned 2013-14 INR 781643 thousand INR 603.28 thousand 3. Findings: (a) Growth rate in Gross NPAs of LDRB and AGVB: The table 2 clearly depicts that the growth rate of Gross NPA of both the banks. In case of LDRB, in the year 2011-12, the growth rate was 26.29%, which d to 42.26% in 2012-13 but declined to 29.58% in 2013-14. While in case of AGVB, in 2011-12, the growth rate of Gross NPA was 31.67%, which decreased to 22.68% in 2012-13. But, this growth rate d to 90.88% in the year 2013-14. The significant finding is that when Gross NPA has d in case of LDRB in the year 2012-13, in case of AGVB, it is opposite to LDRB. (b) Growth Rate of Net NPAs: Table 3 clearly indicates the growth rate of Net NPA. The table shows that there is fluctuating trends in both the banks.. In case of LDRB, the rate has d from 55.40% in the year 2011-12 to 103.35% in the year 2012-13 but decreased to 40.18% in the year 2013-14. While in case of AGVB, the growth rate of Net NPA decreased from 24.19% in the year 2011-12 to 9.44% in the year 2012-13 but, d to 84.40% in the year 2013-14. A significant finding in case of Net NPA is that when the Net NPA in case of LDRB has d to 103.35% (that is, highest during the study period), in case of AGVB, the Net NPA has d only 9.44% which is lowest during the study period. Thus, from the above analysis, it can be said that the trend of the growth rate of Gross and Net NPAs are not same in case of LDRB and AGVB. (c) Percentage of Gross and Net NPAs as against Gross and Net advances: Table 4 reveals that the percentage of gross NPAs as against gross 117
advances have been an increasing trend in case of both the banks. In case of LDRB, the ratio has d from 4.05% in 2010-2011 to 4.53% in 2011-12, 6.00% in 2013-14 and to 6.62% in 2013-2014. In case of AGVB, the ratio has d from 5.69% in 2010-2011 to 5.97% in 2011-12, 6.18% in 2012-13 and to 9.91% in 2013-2014.Though the ratio of Gross NPAs to Gross Advances has d in both the cases, the ratio in case of AGVB is higher than that of LDRB. From Table 5, it is observed that the percentage of Net NPA as against Net Advances has also d in case of both banks over the period of the study. In case of LDRB, it has d from 1.18% in 2010-2011 to 1.63% in 2011-12, to 3.09% in 2012-13 and to 3.79% in 2013-2014. While in case of AGVB, firstly the rate has slightly decreased from 3.33% in 2010-2011 to 3.30% in 2011-12, 3.04% in 2012-13 but d to 4.86% in 2013-2014. Though the ratio of Net NPAs to Net Advances has shown an increasing trend in case of LDRB, the ratio of AGVB is higher than LDRB. (d) Percentage of both gross and net NPA as against Total Assets: Table 6 reveals that there is an increasing trend in case of both the banks over the period of study. In case of LDRB, the percentage of Gross NPA as against Total Assets has d from 1.67% in 2010-2011 to 2.40% in 2013-2014 and Net NPA has d from 0.47% in 2010-2011 to 1.30% in 2013-2014. Similarly in case of AGVB, the percentage of Gross NPA as against Total Assets has d from 2.36% in 2010-2011 to 4.95% in 2013-2014 and Net NPA has d from 1.35% in 2010-2011 to 2.30% in 2013-2014. The in the Gross and Net NPA clearly indicate that the credit defaulter of both banks have been increasing over the study period. From the above analyses, it is found that the percentage of both Gross and Net NPAs as against Gross and Net Advances of AGVB are higher than that of LDRB. It is also same in case of the percentage of Gross and Net NPAs as against Total Assets. 118 (e) Recovery rate of NPA: Table 7 reveals the recovery rate of NPA for both LDRB and AGVB. In case of AGVB, there is a declining trend of NPA recovery. It has decreased from 21.36% in 2010-11 to 20.37% in 2011-12, 18.94% in 2012-13 and to 18.71% in 2013-14. While in case of LDRB, the recovery rate has shown a fluctuating trend. The rate has d from 32.70% in 2010-11 to 43.50% in 2011-12 and again decreased to 33.60% in 2012-13. However, it has d to 37.54% in 2013-14. It clearly indicates that the NPA recovery rate of AGVB and LDRB is not same. And the recovery rate of LDRB is always much higher than that of AGVB. Based on the findings, since the growth trend of NPA is not same in case of LDRB and AGVB during 2011-12 to 2013-14, the first working hypothesis is rejected. In case of second hypothesis, the first part of the hypotheses is rejected since the growth rate in gross and net NPAs against gross and net advances in case of AGVB is higher and the second part is accepted since the growth rate in gross and net NPAs as against total assets in case of AGVB is higher; since, the findings shows different trend of NPA recovery rate in case of LDRB and AGVB, the third hypothesis is also rejected. 4. Conclusion The NPAs have always been a big worry for the banks in India. As mentioned, it is just not a problem for the banks but a serious concern for the economy too. The money locked up in NPAs is not available for productive use and it has adverse impact on banks' profitability. From the study, it is cleared that NPA is a serious matter of both LDRB and AGVB which are Regional Rural Banks of Assam. Some of the major findings of the study are: There is a fluctuating trend of growth rate of both Gross and Net NPAs in case of both LDRB and AGVB during the period of Study. In case of AGVB, the growth rate of Gross NPAs is more than that of LDRB which indicates that the performance of LDRB is better than that of AGVB in terms of Gross NPAs. The growth rate of Net NPAs is more in case of
LDRB than that of AGVB during 2012-13 but decreased in 2013-14. The percentage of Gross NPAs as against Gross Advances has d in case of both the banks during the period of study. Though the rate has d in both the cases, the rate of Gross NPAs in case of AGVB is always more than that of LDRB. The percentage of Net NPAs as against Net Advances has also d in case of both the banks during the period of study; however, the rate is higher in case of AGVB than that of LDRB. There is an increasing trend of percentage of Gross and Net NPAs as against Total Assets in case of both AGVB and LDRB over the period of study. But, the rate of Gross NPAs as well as Net NPAs as a percentage of Total Assets in case of AGVB is always higher than that of LDRB during the period of study. The NPA Recovery rate, in case of AGVB, has shown a decreasing trend whereas in case of LDRB, the NPA Recovery rate has shown a fluctuating trend during the period of study. However, the NPA Recovery rate of LDRB is always higher than that of AGVB. Hence, it clearly indicates that the LDRB, which is operating in the hill districts of Assam, manages NPA better than AGVB. As Pintu and Udayachandra rightly observes that management of non-performing asset is a fundamental challenge for every bank. The banks must see that whatever the funds disbursed must be recovered with an added effect. If not the banking business will not reach its objective and will be far away from its sustenance. To improve the efficiency and profitability, the NPAs have to be scheduled. Various steps have also been taken by government to reduce the NPAs. However, the NPA level of Indian banks is still higher as compared to the international standards. One cannot ignore the fact that a part of the reduction in NPAs is due to the writing off bad loans by the banks. But, this cannot be a permanent solution and hence, for the proper management of NPA in banks is highly necessary. Table 2: Growth rate in Gross NPAs of LDRB and AGVB Gross NPAs Percentage of Gross NPAs (Rs in 000 ) Percentage of 2010-11 632.36 Nil Nil 1179194 Nil Nil 2011-12 798.63 166.27 26.29% 1552678 373484 31.67% 2012-13 1136.16 337.53 42.26% 1904764 352086 22.68% 2013-14 1472.34 336.18 29.58% 3635785 1731021 90.88% Table 3: Growth rate in Net NPAs of LDRB and AGVB Net NPAs Percentage of Net NPAs (Rs in 000 ) Percentage of 2010-11 17959 Nil Nil 673776 Nil Nil 2011-12 27909 9950 55.40% 836736 162960 24.19% 2012-13 56754 28845 103.35% 915763 79027 9.44% 2013-14 79558 22804 40.18% 1688667 772904 84.40% 119
Table 4: Percentage Gross NPAs as against Gross advances GNPAs G. Adv GNPAs on GNPAs G. Adv 120 GNPAs on Gadvs Gadvs 2010-2011 632.36 15617.99 4.05% 1179194 20728263 5.69% 2011-2012 798.63 17646.37 4.53% 1552678 26015645 5.97% 2012-2013 1136.16 18931.94 6.00% 1904764 31135260 6.18% 2013-2014 1472.34 22244.46 6.62% 3635785 36677030 9.91% Table 5: Percentage of Net NPAs as against net advances NNPAs N. Adv NNPAs on N.Advs NNPAs N. Adv. NNPAs on Nadvs 2010-2011 17959 1516522 1.18% 673776 20222845.08 3.33% 2011-2012 27909 1712683 1.63% 836736 25299703.17 3.30% 2012-2013 56754 1836332 3.09% 915763 30146258.70 3.04% 2013-2014 79558 2095691 3.79% 1688667 34729912.32 4.86% Table 6: Table 6: Percentage of Gross and Net NPAs as against Total assets Total Assets GNPAs as % NNPAs as a Total Assets GNPAs as a NNPAs as a % of T.Assets T.Assets of T.Assets T.Assets 2010-2011 3783497 1.67% 0.47% 50019315.34 2.36% 1.35% 2011-2012 4004973 1.99% 0.70% 56118330.27 2.77% 1.49% 2012-2013 4358156 2.61% 1.30% 64248739.96 2.96% 1.43% 2013-2014 6125786 2.40% 1.30% 73414616.43 4.95% 2.30% Table 7. NPA Recovery Rate of LDRB& AGVB Recovery Pre. Year s Gross advs. recovery Recovery Pre. Year s Gross advs. recovery 2010-2011 4390.09 13422.04 32.70% 3456449 16182328 21.36% 2011-2012 6794.67 15617.99 43.50% 4222529 20728263 20.37% 2012-2013 5929.32 17646.37 33.60% 4928170 26015645 18.94% 2013-2014 7107.19 18931.94 37.54% 5824930 31135260 18.71% References Chatterjee, Mukherjee and Das, (2012), Management Of Non Performing Assets - A Current Scenario International Journal of Social Science & Interdisciplinary Research, Vol.1, No 11 Ganesan and Santhanakrishnan, (2013), Non-Performing Assets: A Study Of State Bank Of India Asia Pacific Journal of Research, Vol 1, No 10 Gupta Bratati, (2012), A Comparative Study of Non-Performing Assets of SBI & Associates & Other Public Sector Banks, SIT Journal of Management, Vol. 2, No. 2
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