Non-Performing Assets in Indian Banks: A Comparative Study

INTRODUCTION

Banks are backbone for a financial system. Banks help in channelizing household savings which provides credit for the business in the country but when the principal or the interest of a loan is not given to the banks for a specified period of time, generally 90 days, it would be considered as a Non-Performing Asset (NPA). An asset, including a leased asset, becomes non-performing when it ceases to generate income for the Bank (RBI). A substantial increase in non-performing assets (NPAs) of Indian banking system, especially Public Sector Banks (PSBs), is alarming for the Economy, and the Reserve Bank of India, Central Government and Commercial Banks are trying to control the alarming rise in NPAs. As per RBI provisional data on global operations, as on 31.3.2019, the aggregate amount of gross NPAs of PSBs and Scheduled Commercial Banks (SCBs) were Rs. 8,06,412 crore and Rs. 9,49,279 crore respectively. NPAs are spread-out across the economy in which major sectors are infrastructure, iron and steel, textiles, aviation and mining. The infrastructure and steel sectors are major cause of stress in Banking Sector (Mohan and Ray, 2017). As per report of parliamentary standing committee on Finance (2016), willful defaulters constituted 21% of total NPAs. Rising NPAs results in lowering of profit margins and lesser return for the shareholder (Government in case of public sector banks). It causes Stress in banking sector and has a negative impact on the national economy. Ultimately, it halts the investment-led development process. Several steps have been taken by the Government of India on legal, financial, policy level reforms to tackle the problem of increasing NPAs. Some of the important measures taken are recovery through LokAdalats, SARFAESI Act, 2002, Corporate Debt Restructuring – 2005, Sustainable structuring of stressed assets (SSA) – 2016 and Recent Insolvency and Bankruptcy code Act, 2016.

Sengupta and Vardhan (2017), the NPA problem assumed serious proportions from 2013 onward. They suggested the banks to tighten their credit dispensation mechanism. Kumar (2013) argued that Non-Performing Assets have become a nuisance and headache for the Indian banking sector for the past several years. Singh (2013) found that the origin of the problem lies in the system of credit risk management by the banks and suggested the bank to have adequate preventive measures in fixing pre- sanctioning appraisal responsibility and an effective post-disbursement supervision. Gupta (2012) suggested framework to safeguard the real interest of banks. Chatterjee et. al. (2012) suggested the banks to find out the original reasons/purposes of the loan required by the borrower along with Proper identification of the guarantor including scrutiny of his/her wealth. Kaur and Singh (2011 argued that NPAs are considered as an important parameter to judge the performance and financial health of banks. Prasad and Veena (2011) concluded that NPAs have destructive impact on the return on assets.Chaudhary and Sharma (2011) advocated the development of an efficient management information system training of bank staff involved in sanctioning the advances. According to Karunakar (2008) lasting solution to the problem of NPAs can be achieved only with proper credit assessment and risk management mechanism.

1. To study the current status of NPAs in Indian Commercial Banks 2. To Compare the level of NPAs in Public, Private and Foreign Sector Banks 3. To Compare the growth rate of NPAs in Public, Private and Foreign Sector Banks 4. To Compare the Profitability of Public, Private and Foreign Sector Banks

1. There is no Significant difference in the Gross NPA ratios Among Public, Private and Foreign Banks 2. There is no Significant difference in the Gross NPA Growth rate among Public, Private and Foreign Banks 3. There is no Significant difference in the Return on assets among Public, Private and Foreign Banks

The study is based on data collected from secondary sources, mostly from Reserve Bank of India and from Various Journals, Books and research papers. Non-Performing Assets in Scheduled Commercial Banks which includes Public Sector Banks, Private Sector Banks and Foreign Banks are considered for the present study. Public Sectors Banks include both, Nationalized Banks and SBI & its Associates Banks. The paper discusses the concept of NPA and it highlights the trends and current status of NPAs in Indian Banking Sector. Time Period of the study is eleven years that is from 2008 to 2018.Data have of NPAs and Profitability of the Public, Private and Foreign Banks.

In this section of the study, Current status of Gross NPA, Gross Advances, Growth rate and return on assets of Public, Private And Foreign Banks have been analyzed with the help of tables and graphs.

The table 1 depicts the amount of Gross Advances, Gross NPA, and growth of Gross NPA and Return on Assets of Public Sector banks during the period of study. The amount of Gross NPA has increased from Rs. 406000 crores in 2008 to Rs. 8956013 crores in 2018. The amount of Gross advance has increased from Rs. 18190740 in 2008 to Rs. 61416982 crores in 2018. The Gross NPA ratio shows an increasing trend over the period of study. It has been highest in the year 2018 (14.6) followed by 2017 (11.67) and 2016 (9.27). 2016 showed the highest growth rate of 93.90 % in the growth of NPA in Public Sector Banks. However, it declined to 30.8 % in 2018.

The table 2 depicts the amount of Gross Advances, Gross NPA and growth of Gross NPA and Return on Assets of Private Sector Banks during the period of study. The amount of Gross NPA has increased from Rs. 129220 crores in 2008 to Rs. 1258629 crores in 2018. The amount of Gross advance has increased from Rs. 5236990 in 2008 to Rs. 27258907 crores in 2018. The Gross NPA ratio shows an increasing trend from 2013 to 2018. It has been highest in the year 2018 (4.6). 2016 showed the highest growth rate of 65.8 % in the growth of NPA in Private Sector Banks. However, there has been a decline in the growth rate of Gross NPA from 2016 to 2018.

The table 3 depicts the amount of Gross Advances, Gross NPA, growth of Gross NPA and Return on 2018. The amount of Gross advance has increased from Rs. 1606580 crores in 2008 to Rs. 3633047 crores in 2018. The Gross NPA ratio shows a fluctuating trend during the study period. It has been highest in the year 2016 (4.2). 2016 showed the highest growth rate of 46.85 % in the growth of gross NPA in Foreign Banks. However, there has been a decline in the growth rate of Gross NPA from 2016 to 2018.

The table 4 depicts the amount of Gross Advances, Gross NPA, growth of Gross NPA and Return on Assets of All Scheduled Commercial Banks during the period of study. The amount of Gross NPA has increased from Rs. 566060 crores in 2008 to Rs. 10361872 crores in 2018. The amount of Gross advance has increased from Rs. 25034310 crores in 2008 to Rs. 92662096 crores in 2018. The Gross NPA ratio shows an increasing trend during the study period. It has been highest in the year 2018 (11.2). 2016 showed the highest growth rate of 89.40 % in the growth of gross NPA of Scheduled Commercial Banks. However, there has been a decline in the growth rate of Gross NPA from 2016 to 2018.

In the present section, the null hypotheses have been tested with the help of Analysis of Variance (ANOVA) and results have been interpreted accordingly.

There is no significant difference in the Gross NPA ratios among Public, Private and Foreign Banks

The Null hypothesis states no significant difference among the Gross NPA Ratios of public, private and foreign banks in India during the study period. The P value of F statistic is 0.049; hence the null hypothesis is rejected indicating a significant difference in the Gross NPA of three sectors of Banks during the study period.

There is no significant difference in the Gross NPA Growth rate among Public, Private and Foreign Banks.

The Null hypothesis states no significant difference among the Gross NPA Growth Rate of public, private and foreign banks in India during the study period. The P value of F statistic is less than 5%, hence the null hypothesis is rejected at 5% level of significance, indicating a significant difference in the Gross NPA Growth Rate of three sectors of banks during the study period.

There is no significant difference in the Return on assets Among Public, Private and Foreign Banks

The Null hypothesis states no significant difference among the Return on Assets Ratios of public, private and foreign banks in India during the study period. The P value of F statistic is 0.71; hence the null hypothesis is accepted at 5% level of significance, indicating an insignificant difference in the Return on Assets Ratios of three sectors of banks during the study period.

shows an increasing trend over the period of study. In 2016, 93.90 % growth was showing gross NPA of Public Sector Banks. However, it declined to 30.8 % in 2018. 2. The Gross NPA ratio shows an increasing trend from 2013 to 2018 in Private Sector Banks. 2016 showed the highest growth rate of 65.8 % in the growth of NPA in Private Sector Banks. However, there has been a decline in the growth rate of Gross NPA from 2016 to 2018. 3. The Gross NPA ratio shows a fluctuating trend during the study period in foreign banks. 2016 showed the highest growth rate of 46.85 % in gross NPA in Foreign Banks. However, there has been a decline in the growth rate of Gross NPA from 2016 to 2018. 4. The Gross NPA ratio shows an increasing trend during the study period in all scheduled Commercial Banks. 2016 showed the highest growth rate of 89.40 % in the growth of gross NPA of Scheduled Commercial Banks. However, there has been a decline in the growth rate of Gross NPA from 2016 to 2018. 5. Significant difference was found in the Gross NPA of three sectors of Banks during the study period. 6. Significant difference was found in the Gross NPA Growth Rate of three sectors of banks during the study period. 7. However, an insignificant difference was found in the Return on Assets Ratios of three sectors of banks during the study period.

Non-Performing Assets create problem for the Banking Sector of an economy. NPAs directly affect profitability of the banks. From the analysis of data, it can be concluded that NPA is comparatively very high in Public Sectors Banks. However, Government of India is taking various measures to recover the NPAs, but they are still very high. The large borrowers are the main defaulters of loans and interest on loans. Growing NPAs will hinders the growth of Indian Economy.

1. Public Sectors Banks should revise their current credit appraisal and monitoring 2. Fast settlement system for pending cases of recovery from defaulter should be made. 3. Banks should first try for Compromise Settlement with the defaulter and then LokAdalats and finally Debt Recovery Tribunals should be sought. 4. Mandatory lending to priority sector should be reduced. 5. If the reason is beyond the control of the defaulter, bank can restructure the loan accordingly. 6. Banks should arrange for Training &Development of staff to develop the skills for credit assessment.

1. The study is limited to the Indian Commercial Banks only. 2. The study is limited for a period of eleven years from 2008 to 2018. 3. The study is done in the present environment, NPAs changes with time.

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Assistant Professor, Department of Commerce, Aligarh Muslim University, Aligarh (U.P) India