Analysis of Sector Wise NPAs of Public Sector Banks and Securitization Act 2002

Prashanth K. Reddy (2002) inhis research paper highlighted that due to deregulation in interest rate, reduction in reserve requirements and removal of the entry barriers make progress in the financial sector. An attempt made in this paper was to examine the similarities, dissimilarities and remedial measures related to NPAs. The study reveals that due to the introduction of liberalization, privatization and globalization many changes came into the banking industry. The study revealed that most important changes were related to tackle the problem of NPAs. This paper also deals with the experiences of other Asian countries with respect to handling the problem of NPAs. This paper also examined the effect of reforms on the level of NPAs. By the experience of the other countries many suggested mechanism were also provide to handling the problem of NPAs. securitization is a process which converts the illiquid assets into liquid assets by way of issuing securities in the capital market. It gives opportunity related to diversifying the risk by to invest in new classes of risk that enhance market efficiency. The credit is also managed with the help of the securitization process in which cash flow streams to be traded often involve contingent payments as well as more predictable components .Securitization provides a recovery mechanism without the intervention of the court. In addition to facilitating risk management, securitization process also reduces the liquidity risk in the financial markets by replacing untraded off balance-sheet assets with liabilities of tradable financial instruments. The reason to use the asset securitization process is market failures.

Vadivalagan G, Selvarajan B (2011) highlighted that the health of an economy depends upon a healthy banking system. The health of the banking depends upon the effective credit management. Major part of the income of the bank contributed by the Loans or credit portfolio. These loans contribute towards economic development of the country in the area of Priority Sector. This paper focused on NPAs of priority sector in Indian banks. The Agricultural sector is the largest sector in the total priority sector. According to the RBI guidelines, the target for the agricultural sector is 18 percent of net bank credit. Thus out of 40 percent credit target to total priority sector bank the credit for agriculture takes a sub-limit of 18 percent

there had no fixed target for the banks to grant advances for SSI units. For the upliftment of the weaker section the Indian Bank had disbursed more advances under other priority sector. The NPAs had more in the other priority sector advances. The reduction in the level of NPAs in agriculture and SSI sector was better as compared to the NPA reduction in other priority sector advances. While the total priority sector advances had increased by 129% in five years. It was a major task for the bank to manage the level of the NPAs. Indian Bank disbursed more loans under SSI without reducing the share of advances to agriculture sector. So, Indian Bank give more focus on the NPAs OF both in agriculture and SSI sector.

Research methodology is a way to solve the research problem systematically. While designing the research work the following methodology will be adopted.

The specific objective of the present study is given as:

HYPOTHESIS OF THE STUDY

Ho:(There is no significant difference between the Sector wiseNPAs of public sector banks before and after the enactment of SARFAESI Act 2002.) H1: (There is a significant difference between theSector NPAs of public sector banks before and after the enactment of SARFAESI Act 2002.) Research design This research by and large is descriptive in nature. This research used secondary sources in order to explain the impact of the enactment of SARFAESI Act 2002 on the sector wise advances of public sector banks in India. To achieve the stated objectives, data are collected from various sources and include; Research reports, published articles, news reports and conference proceedings available in both national and international level related to NPA. The information obtained from these sources is used for critical evaluation of the subject and identify research gaps in the area of study. Sampling Unit: For Secondary data the sampling unit constitutes the public sector banks to analyze the trends in thesector wiseNPAs of PSBs after the enactment of the Act.

Analysis and interpretation:TO examine the objective, the hypothesis made that there is no significant difference between the sector wise NPAs of PSBs before and after the Enactment of the Act therefore the trends in NPAs of Sector wise analyzed before the enactment of the Act (1995-96 to 2001-02) and trends in sector wise NPAs after the enactment of the Act (2003-04 to 2013-14) is undertaken. The Trend

in the priority sector, non- priority sector advances

(From year 1995-96 to 2001-02)

Table1.2

(From year 2003-04 to2013-14)

The table 1.1 revealed that amount of priority sector advances was Rs.19106 crore in the year 1995-96 and increase up to Rs.22590 crore in the year 2001- 02. Table 1.2 showed that amount of priority sector advances increased year on year i.e. 2003-04 to 2013-14. The result of the table highlighted that share of priority sector advances to total NPAs was 48.3% in the year 1995-96 and decreased up to 36.5% in the year 2013-14. From the above table it can be inferred that during 2005-06 to till 2010-2011 priority sector share was high in the total NPAs after year 2011 it starts declined. The table-1.1 also revealed that amount of non-priority sector advances was Rs.19067 crore in the year 1995-96 and increase up to Rs.28405 crore in the year 2001-02. Table-1.2 also showed fluctuating trend in the amount of non- priority sector advances i.e. 2003-04 to 2013-14. The result of the table highlighted that share of priority sector advances to total NPAs was 48.2% in the year 1995-96 and increased up to 63.5% in the year 2013-14. From the above table it can be inferred that in the year 2003-05 and 2012-14 non-priority sector share was high in the total advances Table 1.3 highlighted that the difference in the mean scores (22590v/s37876, t-value1.953) is insignificant at 5 percent thereby concluding that no significant change in the level of priority sector advances after the enactment of the Act. CAGR of after Act period is greater than the before Act period. Table 1.3 also highlighted that the difference in the mean scores (51.187v/s47.4545, t-value1.195) is insignificant at 5 percent thereby concluding that no significant change in the level of non-priority sector advances after the enactment of the Act. CAGR of after Act period is less than the before Act period.The table-1.1 revealed that amount of public sector advances was Rs.1411 crore in the year 1995-96 and decreased up to Rs.1116 crore in the year 2001-02. Table-1.2 showed fluctuating trend in the amount of public sector advances i.e. 2003-04 to 2013-14. The result of the table highlighted that share of public sector advances to total advances was 3.6% in the year 1995-96 and decreased up to 1.21% in the year 2013-14. Table-1.3 highlighted that the difference in the mean scores (2.8714v/s0.8018, t-value8.369) is significant at 5 percent thereby concluding that decrease in the level of public sector advances after the enactment of the Act.

This research reviewed the impact of Securitization Act 2002 on the trends in the sector wise NPAs of public sector banks and developed an alternative method to evaluate the credit risk and asset quality of banks. The review of literate and feedback from experts enabled this research to develop the various dimensions of the NPA in Indian banking sector. This background provides a strong foundation for future research in this subject. The regulatory authorities have introduced significant measures in the post-millennium period that generation of fresh NPA particularly its increased trend during financial crisis highlights the need for effective credit risk management mechanism. Amount of NPAs recovered through SARFAESI Act 2002 also increased YOY. According to trends in sector wise NPAs the analysis found that level of priority and non-priority sector Advances increase year on year during the period of study .The result also concluded that there is no significant change in the level of priority and non-priority sector but significant decrease in the level of public sectors advances after the enactment of the Act.

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Assistant Professor, Department of Business Administration, Maharaja Surajmal Institute, New Delhi