Understanding the Impact of Bad Loans on Indian Banking Industry

This research paper focuses on the impact of bad loans on the Indian banking industry. It discusses the challenges faced by banks due to non-performing assets and explores the macroeconomic factors that contribute to bad loans. The paper also highlights the measures taken by the government to reduce the risk associated with non-performing assets.

Name of the Student
Name of the University
Author’s Note
1

Table of Contents
Chapter 1: Introduction................................................................................................................4
What is the issue/problem?.......................................................................................................5
Why is the issue/problem important?......................................................................................6
Context of Research...................................................................................................................6
Research Questions:....................................................................................................................14
Chapter 2: Literature Review.....................................................................................................14
Summary of Literature............................................................................................................19
Methodology.............................................................................................................................21
Research Type..........................................................................................................................22
Data Analysis Tools..................................................................................................................23
Chapter 4: Findings and Analysis..............................................................................................39
Limitations of the Research....................................................................................................53
Chapter 5: Conclusion & Findings............................................................................................54
Causes that led to rising bad loans.........................................................................................57
Curative Measures...................................................................................................................59
References.....................................................................................................................................62
2

Chapter 1: Introduction
The major challenges that are being faced by the Indian banking industry circumscribes
not only issues related to financial statements but also the incorporation of that long and the way
to understand its impact upon the financial health of the firms. Notably there are various
macroeconomic parameters that renders their impact in a significant level due to inter temporal
level of environment of the non-performing assets considered to be bad loans, the market
capitalization and the core competence factors. It is to be understood that the macroeconomic
parametric factors that examines the bad loans in accordance with the four key causes which are
awful supervision, cost consciousness, uncertainties in the market and many more. The feedback
phase is from 2005 to 2017 where various panels of data are being statistically estimated to
understand the Frontier model Garner causality, dynamic panel models, etc. that crucial impact
upon the banks. In this paper, this deterministic approach have been implemented to understand
the outcome of bad loans and their response that impact the banks as well as the macroeconomic
parametric factors that are associated with the commercial banking sector in India.
The non-performing assets are one of the crucial aspect of concern for every Banks is not
only the entire performance but also simultaneously the areas through which the bank can
improve their performance. From a critical point of view, the realistic Sinha you incorporate that
Indian banking division is in the process of experiencing serious issues regarding the non-
performing assets. The NPAs has relatively bigger impact upon ballistic view the credit non
payments as well as upon the liquidity of the banks. Specifically, upon the public division Bank
it has been found that the non-performing assets if handled properly then it enhances the
competence and effectiveness of Banking performance. Various steps are considered by the
3

government in order to decrease the non-performing assets as well as the risk associated due to
the nonperformance of banking assets. It is to be understood that 0% non-performing assets is
quite impractical and hence in that case Indian banks must printer their attention to make sure
that the offer loans but most importantly to the creditworthy clients.
What is the issue/problem?
The implication of the bad loans is associated with its importance for which it arises in
the commercial banks of India. Notably every Indian banks needs assets we can provide credit
loans to potential consumer service becomes a matter of worrying if those assets becomes non-
performing for the banks. Non-performing assets are one of the most excellent tool that measures
the effectiveness of the bank and how sound performance it is executing in the market where it
prevail. Bad loans representative of a Bank's performance but also an essential. The towards the
credit risk associated with the banking performance. Bad loans are the allowable stress that every
banking business have to suffer subsequently. However, crucial necessity loans available the cost
of the fact that it remains unutilized or non-performing. Understanding on this aspect focuses on
the reliability of the customers as well as the banks’ ability to strategize the process of
overseeing bad loans. Locate me the public sector banks of demonstrated their greater execution
as compared to the private divisional banks of the country of India to the extent up to which
money that leads to the task under consideration.
The public Centre banks on this respect of non-performing assets have found to
demonstrate their performance coupled with greater outcome. How were the main issue of the
public sector bank without expanding level of non-performing assets despite of the fact that
4

segments ok banking industry which non-performing Assets has crucial impact is monotonically
decreasing impact on the NPAs. To emphasize this issue it can be incorporated that the decrease
in the badlands have reinforced the examination of credit system of the consumers as well as
implementation of appropriate regulatory governance over the risk associated with it. The Indian
banking division has confirmed that major issues with the public sector banks in comparison to
thought of the day with division banks when the major aspect of concern is to enhance The
Prophecy and see and success level of the banks which is getting hamper due to improper control
over the non-performing assets.
Why is the issue/problem important?
The issue is important as per Mukherjee (2016), because of the fact that Indian banks are
top list of bad loans has collected by the lenders of the country. Compare to other economy is
like that of United Kingdom, states of America Japan, china, etc. it is been found that India is
consulted with dog challenge regarding non-performing assets being 5TH Nation among the 39
big Economics of the world that is suffered due to improper regulation or methodical
systematization of bad loans as well as non-performing assets.
Context of Research
The research is being performed upon the Indian banking industry and objectives of the
research is associated to create a proper information regarding the performance of the non-
performing assets like bad loans and to understand the extent of impact of it upon the Indian
banking sector. Confrontation with the problem of bad loans that is extensively taking place in
the Indian banking industry dog it is being rent at V nation in the world with such problem there
5

is requisition for understanding the industrial scenario of the first Commercial Bank of India and
these financial data and information regarding non-performing assets are being utilized to
conduct the research.
Banking environment in India
The environment of the research circumscribes the Indian banking industry and
specifically the commercial banks of the country. The problems comes under focus due to the
challenges of bad loans confronted by banks. The ranking of the country in terms of faced
problem regarding bad loans is five throughout the world. The growth of the banking sector is
rapid and hence commercial banks are being taken under consideration for a better research to
understand the fast moving complex market scenarios based on fluctuating industrial conditions.
The co-operative banks and the commercial; banks together comprises of the Indian banking
industry in terms of facing challenges regarding the problems of non-performing assets. Hence,
banking industry of India has large involvement of the commercial banks as well as cooperative
banks. The proportion of the commercial banks are segregated with scheduled and non-
scheduled commercial banks upon which the scheduled commercial banks are one of the
commercial banks that incorporates the second schedule of The Reserve Bank of India Act 1934.
This scheduled commercial banks the activity based on certain circumstances where the
connection with paid up capital, reserves, etc. are of crucial importance. On the other hand the
scheduled commercial banks conquerors of the old and new domestic private sector banks, local
rural banks, overseas sector banks, State bank of India and its subsidiaries. The banks in India is
thus state owned specifically in two phases by the year 1969 and 1980 where 14 major private
sector banks were commenced and the remaining other 6 were established by the 1980 followed
6

by the era of nationalization. The assessment was done based on the share of the credit for which
90 % of the divisional segment were done for government possessed bank while the rest of the
segment is being done by uniformly segregating them among the foreign banks and that of the
small privately owned banks whose size limit were set by the government as per the protocols of
nationalization. It is being found that from 1980 to 1992 the public sector banks were completely
owned by the government of the country. The first and foremost bank that shifted to become a
public sector bank was State Bank of India (SBI) by the year 1992-1993.
Figure 1: Comparison of different countries in terms of loans borrowed from the financial institutions
7

Figure 2: Trends of housing loans Figure 3: Bank wise segmentation of the loans taken by households
Source: Ganapathy, Alagarsamy and Raguraman. (2017)
Since the nationalization of the banks it is been found that the banking sector is booming
based on it expansion in the market. From 1969 to 2015 the commercial banking sector have
found to grow up to 152 from 89. This raised the credibility of the banking financial services and
the products that are being deployed by them in the market. The images reveals that fact that
among the credit enjoyed by the households that are being obtained from various countries
throughout the world a brief comparison is being made between Brazil, China, Germany, India,
Indonesia, Kenya, UK, USA and Russia. There it is been seen that the borrowing from the
financial institutions specifically in India have lessened as compared to other countries. This may
be due to the reason that the company is not able to maintain the balance between acquiring
deposits to make and siphoning them off to the people who are making requisitions for loans.
8

Due to this reason the banks are raising their interest rate upon loans within fixed stipulated
periods and the common people are not found to properly repay their loans on time. This
consequently leads to low recovery rate of the bank debts and hence the bad loans becomes
higher and are being considered as the non-preforming assets for the banks. Also another reason
comes out as it is been seen that there are households within the country of India that are not able
to return bank the loans on time due to the reason that accounts of bad loans is getting higher in
case of the commercial banks of the country. These factors altogether is commencing the
provision of bad loans that are not being matched with equally payable amount by the loan takers
from the banks. Based on the problem it is being seen from the other two figures that the share of
the total credits from the banks is lower than the amount that the loan takers have to pay in return
of taking the loans. Moreover, it is also been seen from figure 3 that the common people are thus
getting interested in the foreign banks rather than the commercial banks of the country. The shift
is extracting the consumer share of the commercial banks and siphoning them off to the foreign
banks that are getting more amount of grip upon the country of India in terms of market
capitalization.
The commercial banks of the country are performing salient functions regarding
allowance for deposits made as well as lending loans as required. However, there is no risk
associated with the deposits made by the people as the banks are performing enough responsibly
in repaying the deposits along with the allotted rate of interest. On the other hand, in case of the
lending of the loans there is presence of sufficient amount of risk as there is less amount of
certainty regarding the repayment of loans. These non-repaid loans are no found to again work as
an asset for the banks and due to this reason these assets are not found to add any more amount
9

of value in the banking performance and hence get allotted as the non-performing assets for the
banks that are termed as the bad loans. However, if proper emphasize is being given in
understanding the reason behinds such anomaly then it can be seen that the loans are given in
order to earn return from the lend people. However, their ability to repay the loans are not only
the factor in determining their ability to repay the loans bank. The banks are found not to be able
to maintain the balance between the deposits that are being made by people in the banks and
moreover they are raising the rate of interest upon loans. This is creating more gap between the
lending of capital and depositing of capital into the banks. When the mismatch or the imbalance
needs to be covered up then to do so the banks focuses upon raising the rate of interest in order to
cover up the gap. This is leading to further gap in the commercial banking sector and directing
the consumers to shift upon the foreign banks which are to found to be better competitors in
comparison to the commercial banks of the country. The whole scenario is a mismanagement of
the funds as well as a tendency to cover up the risk associated with the borrower and the lenders
at a faster rate without looking forward upon the ill effect of such financial discrepancies and
working strategy of the banks in the sole motive of profit maximization. Since the efficiency of
the banks and the condition of the financial health of the banks are sufficiently reflected by the
amount of bad loans that the banks have hence it is important that the commercial banks of India
should focus upon recovering their non-performing assets without losing customers to foreign
competitors and with accomplishing this activity based upon financially feasible manner that
would not threaten their stability in the industry for the long run. Since the bad loans are key
reflector of the banks financial stability hence the banks should such sort of plans that guarantees
that the loans will be recovered with the constant that loss of consumer share in the industry will
10

be low from their side as no customer will feel insecure regarding their investments in the banks
as well as their credibility upon the banks will be intact. Notably, bad loans hinders the revenue
generation process up to the anticipated level if they are not recovered within or by 3 months
from the estimated recovery periods. However, banks faces the pressure of returning back the
deposits to the lenders and hence they have to create provisions for bank loans. When the banks
faces too much of bad loans then the performance of the banks are thus hindered as they are
committed to return the deposits back to the lenders. Moreover, the depositors have deposited
their money in order to gain interest form the banks. So the amount of interest upon the
principles of the deposited amount becomes also a liability for the banks as the banks are not
able to recover the amount due to the non-performing assets that is not able to add value to the
financial performance of the banks. Thus not only the banks but also the overall economy in
which the banks are being performing also gets affected by the bad loans of the commercial
banks. The net worth of the banks falls due to these non-performing assets as the extra amount of
valuation that their performing assets earns gets equally subtracted due to the provision made for
the non-performing assets that uncertainly took place. The account linked with the loans as not
sufficiently supervised due to which the bad loans are increasing followed by playing a key
factor in deteriorating the worth of the bank’s financial performance as well as leading to the
increase in the collateral securities due to the wilful non-repayment made to the borrowers. It is
also been seen that the amount of bad loans are more in the public sector banks in comparison to
that of the private sector banks. This signifies the fact that the banks needs to cover up their
loopholes in order to perform in a better way and lower their non-performing assets. Moreover,
11

this will help in increasing the overall productivity of the banks in a short span of time ensuring
financial stability of the banks.
The role of the asset restructuring companies (ARCs) can be considered as a key risk
drawing institutions and support the banks from suffering due to bad debts as these agencies
work sufficiently only keeping in focus the recovering of the loans. A powerful system is the
pillar in stimulating a country and encouraging it towards acquisition of investments as well as
reserves that will support the ill situation of the financial health of the financial institutions. At
the initial stage of the liberalization in 1991 followed by the financial reforms that took place due
to effective economic growth. It is been found that 90 % of the assets of the country is been
owned by the commercial banks and the foreign banks, tiny local banks in the rural areas of the
country possess less amount of market share in the banking system of the country. However, due
to deficit in properly managing the non-performing assets the problem is downgrading the
quality of the banks performance in the banking sector of India. The asset quality is not a big
issue before the era of globalization in India but after the liberalization or globalization took
place in the country the market entry and exist by overseas competitors became high and
consumers within the country prefer to become brand loyal to those foreign banks as they are
found to be more financially safe as compared to that of the domestic commercial banks. Before
1991 the asset quality was not linked with the key goals of the banks. However after
liberalization the banks is faced by the challenge in considering that how much value is being
added by their assets in the market based on which the banks is able to lend loans to the
borrowers and acquire deposits. The banks are now focused much more on the banking
environment from overall perspectives as well as the key factors like diversification, growth in
12

the rural segments, creation of job opportunities and boosting the level of employment within the
country, etc. Banks are found to become less careful regarding giving out loans to public rather
they focuses more upon acquisition of deposits. However this leads to the occurrence of poor
financial performance as the banks has less amount of focus in snatching out value from the bad
loans and recovering the non-performing assets.
Research Questions:
1. What are the classification of the banking sector in India?
2. What is the impact of non-performing assets upon the commercial banks performance of
India?
3. How the bad loans can be recovered in case of the commercial; banks of India?
Chapter 2: Literature Review
The banking industry in any country is composed of the cash and credit segments that
they renders to the individual entities or large organization in order to support them to achieve
economic stability and ensure quantitative as well as qualitative change. The quantitative change
is accomplished based on the ability of the individuals or big organizations to ensure economic
growth whereas the aspect of qualitative change is an outcome of development through the
process of continuous and sustainable growth. Both of these is achieved if and only if the
organization or individual entities is able to consider the macroeconomic factors that are
impacting them significantly and to improvise their performance based on the restraints that are
imposed the external or macroeconomic factors as well as the internal or the microeconomic
13

factors. Thus the literature review is an endeavour to delve into these aspects based on the
previous analysis that are being theoretically or empirically rendered by different researchers. It
is shown as follows:
According to Anand, (2018) the institutional bodies that accepts deposits and provides
loans are the risk taker within any country. In India the apex banking institution is Reserve Bank
of India (RBI) that determines the monetary policy and sets them for the economy so that not
only the banking sector within the country but also the entities whether individual or
multinational is able to perform better with the support of the banks. In order to regulate the
banks effectively it is important that the banks should be able to recover the bad loans from the
borrowers in a financially sustainable manner. The micro foundation behind the macro economic
factors that hinders this borrowers to repay back their loans is the inability to counter the
challenge that is being led poverty as well as inequality within the country. It is a common
known fact that the country of India is in its transition phase from a less develop country towards
a advance developing country. The human development index and the other indices reveals the
fact that the country is able to boost their population though it lacks in raising their per capita
income. The country goes with its common loophole of considering that growth is an effective
parametric factor in determining its continuous progress overtime. However, the financial
stability of india which is correcting a developing country lies in its ability to bring qualitative
change from all respect. Monotonic decease in the growth rate of India can temporarily hamper
ist gross domestic product as well as the national income. However, in the long run it is
important to understand that the strength of an economy is not determined by the inclusive
growth within the economy only but by the economic development it is able to brought forward
14

overtime. If the trend analysis reveals that the economy of the country is deteriorating but the
development of the country is able to drive it towards sustainability then that kind of economic
conditions should be highly appreciated. This requires the ability of the country’s major financial
institution to take the risks of supporting reducing poverty as well as inequality by ensuring
sustainable development. The paper highlighted the fact in order to boost the macroeconomic
factors that impacts the banking sector of the country the microeconomic factors should be taken
care of. The price of goods and services that are being deployed within the country for
production, consumption, distribution and exchange purpose should be manipulated not at low
rates or high rates but at a balanced rate that will not hamper the economic equilibrium of the
domestic market place. The trade balance or the balance of payment of the country should not be
accompanied by trade deficits through high import and low export rather domestic production
should be supported by the bank loans which would be recovered after the production level is
followed as well as marketed and bought. This will ensure acquisition of foreign reserves for thr
country as well as will help the banking sector to bring economic development.
In accordance with Abidi & Joshi, (2017) there is importance to understand the role of
the banking sector in a country’s economy especially for India. This will only takes place if the
banking sector of the country prefer to perform based on maintaining the macroeconomic
balance within the country and ensuring that they are able to bring infrastructural development in
the country. The country should redesign their monetary and fiscal policies based on the
condition of their economy. Over 60 % of the country’s population is dependent upon the
agrarian society that persists within India. However, it was in an effective desire to transform to
an industry based economic structure. This requires availability of huge funds for boosting the
15

machinery intensive sectors and siphoning off labour from the agricultural segment to the
industrial segments. The country did the same but missed the focus upon the agricultural sector
and for this they lost skilled labour force in the agricultural sector now a days. Moreover, the
labour force that are being siphoned off in the industrial sector are not trained to be sufficiently
skilled and educated. This led to the lowering of the potential productivity of the country in the
agrarian sector and at the cost of that they are not able to raise the efficiency of the labour force
in the industrial sector that are being siphoned off from the agricultural sector. People found to
migrate in order to earn faster but this was not found to get executed. The current scenario is
being found that major people of this labour force is not able to become successful in the
industrial sector and preferred to return back in their profession of agricultural activities. They
took the initiative to take loan from the banks and restart their agricultural endeavours but due to
imbalance in the economy is not able to recover their business as it was before and confronted
with suicides, exile, etc. activities. This created an economic mishap within the rural sector of the
economy. The bad loans are the outcome of the economic turmoil whose seed is been injected in
the economy decades before.
According to Bhaskaran et al. (2016) the banking sector of the country is a major
building block in absorbing the risk that is generated within the economy due to macroeconomic
parameters that affect the performance of the economy as a whole. The commercial bank are
monitored by the Banking Regulation Act, 1949 implemented to ensure economic effectiveness
that is helpful for the people of the country as well as the organizations that adds value to the
national income of the country. The primary role of this banks are to grant loans as well as
deposits for the corporates, government, general public and other economic entities of the
16

country. The public sector banks are held by the government whereas the private sector banks
have major stakes or equity by the private shareholders. Moreover, the foreign banks are also
effective operating within the country that fulfils their commercial purpose though headquartered
in a foreign country. HSBC, Citi Bank, Standard Chartered, etc. are the leading foreign banks in
India. The rural regional banks as also the scheduled commercial banks that works to meet the
objective of assisting the weaker sections of the economy specifically agricultural labourer, small
and medium size enterprises as well as the marginal labourers. These banks their branches
majorly in the rural areas of the country though possess their head offices in the urban areas of
the country. The major functions of this banks are consist of providing banking financial services
to the semi-urban and rural areas of the country followed by encouraging the government
activities like MNREGA, distribution of pensions, etc. as well as initiating para-banking
facilities like financial services through debit cards, credit cards as well as locker facilities. The
other classification of the commercial banks comprises of the small financing banks that created
a niche market with the sole objective of rendering financial inclusion to those sections of the
society that are not being served by other banks. These comprises majorly of the micro industries
of the unorganized sector. Finally the cooperative banks are the other segment of the banking
sector that is covered under the Cooperative societies Act, 1912 and they are ran by the
managing committees. This works in accordance with the purpose of boosting the economic
framework of the country as a non-profit organization and serve the small businesses,
entrepreneurs, industries for empowering them and generating self-employment facilities as well
as new opportunities that have the ability to capitalize them into better economic infrastructure.
The banks works also to boost the segments of the economy that facilitates initiatives like
17

hatcheries, livestock as well as farming activities. The other banking model that is newly
incorporated in the country’s banking industry is the payment banks. It was being conceptualized
by the RBI in order to allow restricted deposits where the limit is currently set into 1 lakh for
each and every customers. Services like mobile banking, net banking, debit and ATM card, etc.
are the major financial instruments that are provided by these banks. The paper highlighted the
classification and the importance of the banking industry as well as the gap that is being created
in disguise of then economic fluctuations due to improper fund management initiatives.
Summary of Literature
The NPAs are rising in the economy of India due to inability of the banking sector of the
country to effectively supervise the funds that are being provided as loans to the potential
borrowers and not estimating their ability or provisions available to them for repaying the loans.
Effective risk management initiatives should be undertaken for empowering them as only
providence of funds by the financial institutions is not able to effectively make the non-
performing assets, performing assets. Rather it is required that the general public or the
corporates that are taking loans are providing transparent information regarding their financial
transaction and is able to keep transparency about the accounting information. In case of the rural
sectors where there is presence of both the organized as well as unorganized sector it is important
that the banks should not only focus on providing funds to the individuals or multinationals
rather will focus more in their ability to return the funds back. Moreover, they should proper
alternative plans for the borrowers. It was being highlighted in the paper that the banks should
not only remain keeping in focus that whether the capital support that they are rendering to the
18

stakeholders but also should keep a keen focus in helping them empowering the stakeholders
rather than maximizing their own profit only if they really wants to strengthen the country’s
banking system as well as bring forwards sustainable economic framework for economic
development which will only get possible if there exist a retardation in the rate of increase of the
NPAs.
The objective of the banks should not only be to diversify the banking structure and
utilizing the notion of division of labour and segmenting banking units that are specialized in
different activities followed by ensuring economic development but also should focus in
maximizing the asset utilization of them that they have loaned to other economic entities that
adds value to the national income of the country. The various kind of risks that are practically
handled through a pragmatic approach of planning, arranging, leading and controlling through
risk management techniques that traces all the daily as well as the last performance of the
organization. The major aspect of concern is also been related with the credit risk involved in
case of the banks. The crucial hitch is concerned with the disability of the clients to pay back the
credit that they have taken from the bank and other private sector financial institutions. As long
as the banks are focusing upon mitigating the default issue from the beginning of the credits that
are given out, it can be said that the banks have already lessen out the possibility of the defaults.
It India non-performing assets are always remained an issue of concern due to the reason that the
banks have taken less consideration in case of helping the consumers payback the same within
stipulated time frame. Along with that the banks are found to focus much more in providing
credit and credit opportunities though they lack in focusing upon monitoring the credits and
hence the risk involved in the process is found to become cumbersome when they tries to handle
19

them at the end when already the clients become defaulter of the loans that they have taken from
the banks. The management procedure in the banks have accelerated the recovery periods and
hence the effect of the defaulting issue have affected the economy as a whole also. The issue of
this recovery is not related with the small borrowers of the loan but due to the non-stringent
strategies that are applied by the banks to recover the loans from the big borrowers. Since the big
borrowers take huge amount of loans hence this impact upon the liquidity of the banks that
affects its overall financial performance in the long run if remained unrecovered. Due to this
reason it is been found that the Reserve Bank of India (RBI) is rendering keen focus upon
assisting the banks on this issue for escaping the defaulting risk with the implementation of
effective strategic endeavours.
Methodology
The years from 2014 to 2017 is being taken under consideration based on the information
that are available from the banks in order to interpret the correlation within private sector banks
and the open division banks.
Sample Population: Information that are identified with transfer of awful credits for open and
private division banks are being utilized as the population sample in the study.
Research Approach: The approach of the research is considered to be descriptive as it will help
in understanding the characteristics of the population as well as delve into the phenomenon taken
under consideration. It is where a causal relationship is not considered rather how one variable is
been affected by the other is taken under focus.
20

Information gathering: Supplementary information is been acquired from the source of RBI
followed by utilizing the survey results and I formation that are incorporated by them.
Age & day: thee correlation is being executed taking under consideration that the information
that are available in the past years of the trend analysis. Moreover, the problem is been studies
based on the analysis that is being reflected by the secondary data in the reference papers of the
Reserve bank of India along with the directions, instructions as well as the policies that are taken
under consideration by the banks. Also the texts, editorials and various research thesis are being
utilized too taking from IIB, Indian Banking Association (IBA), seminar events, etc. in order to
ensure that the information that this research will project upon should be an effective analysis
that possess higher credibility and transparency followed by revealing the existing situation that
is being prevalent in the commercial banking industry of India.
Research Type
Descriptive research approach is being implemented in order to ensure that the study is
done extensively taking under consideration all the related incidents in the management of the
bank’s credit risk and the aspects of bad loans. The yearly reports of the RBI journals and the
progress of banking in India reports from the year 2005 to 2015 are being utilized as the
secondary source of data. The relevant statistical tables are linked with the banks followed by the
writings and information that are being acquired from the magazines, webpages, books, papers,
etc. that have worked upon the banks performance of India and provided substantial documents
related to it.
21

Data Analysis Tools
The data that are taken under consideration are transferred into tabular format to visualize
the numerical values involved along with computing the calculations that will reveal significant
information related to the credit risk management and aspect of bad loans in case of the
commercial banks of the Indian banking industry. The process is done for incorporating the
finding through the analysis of the trends, ratio analysis, the net and gross bad loans involved,
etc. The aggregate sum of the doubtful loans, lost assets, sub-standard assets as well as the loss
of interest that are to be paid upon them, etc. all together comprises of the gross bad loans. The
rate to that of the gross credit assets of the bank are taken under consideration in the process of
examining the assets that created the bad loans for the banks. When the arrangements are left
aside from that of the aggregate o the real bad assets then it gives the Net bad loans. However, to
get an exact clarification regarding the net bad loans, the proportion of the net bad loans to that
of the net advances is been taken under consideration. The actual figure renders information
regarding the situation of the bad loans in the past in case of the commercial banking industry of
India that can be shown as follows:
Scheduled Commercial Banks
Year
(March-
End)
Advances Non-Performing Assets
Gross Net Gross Net
Amou
As
Percenta
As
Percent
Amou
nt
As
Percent
As Percentage of
Total Assets
22

nt
ge of
Gross
Advance
s
age of
Total
Assets
age of
Net
Advance
s
2014-15 7562
0. 0
3229 4. 3
2013-14
68757
. 48
67352
. 32
2641.
95
3.8 2. 4
1426.
57
2. 1 1. 3
2012-13
59882
. 79
58797
. 73
1940.
74
3. 2 2. 0
987.
10
1. 7 1. 0
2011-12
46655
. 44
50735
. 59
1429.
03
3. 1 1. 7
652.
05
1. 3 0.8
2010-11
40120
. 79
42987
. 04
979.
00
2. 5 1. 4
417.
00
1. 1 0. 6
2009-10
35449
. 65
34970
. 92
846.
98
2. 4 1. 4
387.
23
1. 1 0. 6
2008-09
30382
. 54
29999
. 24
683.
28
2. 3 1. 3
315.
64
1. 1 0. 6
2007-08 25078 24769 563. 2. 3 1. 3 247. 1. 0 0. 6
23

.85 . 36 09 30
2006-07
20125
. 10
19812
. 37
504.8
6
2. 5 1. 5
201.
01
1. 0 0. 6
2005-06
15513
. 78
15168
. 11
510.
97
3. 3 1.8
185.
43
1. 2 0. 7
2004-05
11526
.82
11156
. 63
593.
73
5. 2 2. 5
217.
54
2. 0 0. 9
2003-04
9020.
26
8626.
43
648.
12
7. 2 3. 3
243.
96
2.8 1. 2
2002-03
7780.
43
7404.
73
687.
17
8.8 4. 1
296.
92
4. 0 1.8
2001-02
6809.
58
6458.
59
708.
61
10. 4 4. 6
355.
54
5. 5 2. 3
2000-01
5587.
66
5263.
28
637.
41
11. 4 4. 9
324.
61
6. 2 2. 5
1999-00
4751.
13
4442.
92
604.
08
12. 7 5. 5
300.
73
6.8 2. 7
1998-99 3994. 3670. 587. 14. 7 6. 2 280. 7. 6 2. 9
24

36 12 22 20
1997-98
3526.
96
3255.
22
508.
15
14. 4 6. 4
237.
61
7. 3 3. 0
1996-97
3016.
98
2764.
21
473.
00
15. 7 7. 0
223.
40
8. 1 3. 3
Public Sector Banks
Year
(End-
March)
Advances Non-Performing Assets
Gross Net Gross Net
Amou
nt
As % of
Gross
Advanc
es
As %
of
Total
Assets
Amou
nt
As % of
Net
Advance
s
As % of
Total Assets
2014-15
56167
. 00
2785. 0 5. 0
2013-14
52159
. 20
51011
. 43
2280.
74
4. 4 2. 9
1306.
24
2. 6 1. 6
2012-13
45601
. 69
44728
. 45
1656.
06
3. 6 2. 4
900.
36
2. 0 1. 3
25

2011-12
35503
.89
38773
. 08
1178.
39
3. 3 2. 0
593.
91
1. 5 1. 0
2010-11
30798
. 04
33056
. 32
746. 00 2. 4 1. 4
360.
00
1. 2 0. 7
2009-10
27334
. 58
27013
. 00
599. 26 2. 2 1. 3
293.
75
1. 1 0. 7
2008-09
22834
. 73
22592
. 12
449. 57 2. 0 1. 2
211.
55
0. 9 0. 6
2007-08
18190
. 74
17974
. 01
404. 52 2. 2 1. 3
178.
36
1. 0 0. 6
2006-07
14644
. 93
14401
. 46
389. 68 2. 7 1. 6
151.
45
1. 1 0. 6
2005-06
11347
. 24
11062
.88
413. 58 3. 6 2. 1
145.
66
1. 3 0. 7
2004-05
8778.
25
8489.
12
483. 99 5. 5 2. 7
169.
04
2. 1 1. 0
2003-04
6619.
75
6313.
83
515. 37 7.8 3. 5
193.
35
3. 1 1. 3
2002-03 5778. 5493. 540. 90 9. 4 4. 2 248. 4. 5 1. 9
26

13 51 77
2001-02
5093.
68
4806.
81
564. 73 11. 1 4. 9
279.
58
5.8 2. 4
2000-01
4421.
34
4152.
07
546. 72 12. 4 5. 3
279.
77
6. 7 2. 7
1999-00
3794.
61
3527.
14
530. 33 14. 0 6. 0 261.87 7. 4 2. 9
1998-99
3253.
28
2977.
89
517. 10 15. 9 6. 7
242.
11
8. 1 3. 1
1997-98
2849.
71
2604.
59
456. 53 16. 0 7. 0
212.
32
8. 2 3. 3
1996-97
2442.
14
2209.
22
435. 77 17.8 7.8 202.85 9. 2 3. 6
Public Sector Banks
Year
(End-
Marc
h)
Advances Non-Performing Assets
Gross Net Gross Net
Amou
nt
As % of
Gross
As %
of
Amou
nt
As % of
Net
As % of
Total Assets
27

Advanc
es
Total
Assets
Advance
s
2014-
15
56167.
00
2785. 0 5. 0
2013-
14
52159.
20
51011.
43
2280.
74
4. 4 2. 9
1306.
24
2. 6 1. 6
2012-
13
45601.
69
44728.
45
1656.
06
3. 6 2. 4
900.
36
2. 0 1. 3
2011-
12
35503.
89
38773.
08
1178.
39
3. 3 2. 0
593.
91
1. 5 1. 0
2010-
11
30798.
04
33056.
32
746. 00 2. 4 1. 4
360.
00
1. 2 0. 7
2009-
10
27334.
58
27013.
00
599. 26 2. 2 1. 3
293.
75
1. 1 0. 7
2008-
09
22834.
73
22592.
12
449. 57 2. 0 1. 2
211.
55
0. 9 0. 6
2007-
08
18190.
74
17974.
01
404. 52 2. 2 1. 3
178.
36
1. 0 0. 6
2006- 14644. 14401. 389. 68 2. 7 1. 6 151. 1. 1 0. 6
28

07 93 46 45
2005-
06
11347.
24
11062.
88
413. 58 3. 6 2. 1
145.
66
1. 3 0. 7
2004-
05
8778.
25
8489.
12
483. 99 5. 5 2. 7
169.
04
2. 1 1. 0
2003-
04
6619.
75
6313.8
3
515. 37 7.8 3. 5
193.
35
3. 1 1. 3
2002-
03
5778.
13
5493.
51
540. 90 9. 4 4. 2
248.
77
4. 5 1. 9
2001-
02
5093.
68
4806.8
1
564. 73 11. 1 4. 9
279.
58
5.8 2. 4
2000-
01
4421.
34
4152.
07
546. 72 12. 4 5. 3
279.
77
6. 7 2. 7
1999-
00
3794.
61
3527.
14
530. 33 14. 0 6. 0 261.87 7. 4 2. 9
1998-
99
3253.
28
2977.8
9
517. 10 15. 9 6. 7
242.
11
8. 1 3. 1
29

1997-
98
2849.
71
2604.
59
456. 53 16. 0 7. 0
212.
32
8. 2 3. 3
1996-
97
2442.
14
2209.
22
435. 77 17.8 7.8 202.85 9. 2 3. 6
30

Foreign Banks In India
Year
(End-
March)
Advances Non-Performing Assets
Gross Net Gross Net
Amount As
Percentag
e of
Gross
Advances
As
Percentag
e of
Total
Assets
Amount As
Percentag
e of
Net
Advances
As Percentage of
Total Assets
2014-15 3366. 0 108. 0 3. 2
2013-14 2995. 75 2911.
54
115. 79 3. 9 1. 6 31. 72 1. 1 0. 4
2012-13 2689. 67 2636.8
0
79. 97 3. 0 1. 3 26.80 1. 0 0. 4
2011-12 2347. 10 2298.
49
62. 97 2. 7 1. 1 14. 12 0. 6 0. 2
2010-11 1993. 21 1955.
39
50. 00 2. 5 1. 0 12. 00 0. 6 0. 3
2009-10 1674. 37 1632.
60
71. 33 4. 3 1. 6 29. 77 1.8 0. 7
2008-09 1697. 16 1653.8
5
64. 44 3.8 1. 5 29. 96 1.8 0. 7
2007-08 1629. 66 1611.
33
28. 59 1.8 0.8 12. 47 0.8 0. 3
2006-07 1278. 72 1263. 22. 63 1.8 0.8 9. 27 0. 7 0. 3
31

39
2005-06 989. 65 975.
62
19. 28 1. 9 1. 0 8. 08 0.8 0. 4
2004-05 770. 26 753.
54
21. 92 2.8 1. 4 6. 39 0.8 0. 4
2003-04 626. 32 605.
06
28. 94 4. 6 2. 1 9. 33 1. 5 0. 7
2002-03 541.84 521.
71
28. 45 5. 3 2. 4 9. 03 1. 7 0.8
2001-02 506. 31 487.
05
27. 26 5. 4 2. 4 9. 20 1. 9 0.8
2000-01 453. 95 430.
63
31. 06 6.8 3. 0 7.85 1.8 0.8
1999-00 374. 32 355.
43
26. 14 7. 0 3. 2 8. 55 2. 4 1. 0
1998-99 310. 59 294.
92
23. 57 7. 6 3. 1 8. 66 2. 9 1. 1
1997-98 309. 72 296.
52
19. 76 6. 4 3. 0 6. 66 2. 2 1. 0
1996-97 275. 25 268.
53
11.81 4. 3 2. 1 5. 16 1. 9 0. 9
It is to be noted that the data that are available about the Public Sector banks & Scheduled Commercial banks, there the
effects of the change over from a non-banking to a banking body is taken under consideration for maintaining the
relevance of the information
32

There is a constant declination from 1996-97 to 2007-08 in the levels of the bad loans to
the gross advances of scheduled business banks. The percentage by which the gross bad loans to
that of the gross advances has been lowered is being 2.3 % by the end of March of 2008. This
was at an astounding level of 15.7 % in the year of 1997. However, the gross bad loans increased
from that of 473 billion to that of 563.09 billion within the same time frame. This example
incorporates the fact that the total amount of bad loans remained constant within the same time
period wherein the rise in net bad loans was 247.30 billion by the year 2008 where it was 223
billion at the ending of 1997. The proportion of the bad loans in net amount to that of the net
advances has been declines to that of 1 % by the year 2007-08 from that of 8.7 % by the year of
1996-97. It is also been seem that the value have risen in 2008-09 after the downturn in the net
values due to fiscal turmoil in the American economy. In case of the scheduled commercial
banks it is also been seen that the bad loans have been ascended up to that of 3229 billion rupees
by March 2015. Expansion have taken place in the proportion of the bad loans with respect to
that of the gross advances by 201 % in the year 2015 as compared to that of 2008. In addition to
that the proportion of gross bad loans to that of the gross advances have been found to increase
from that of 2.3 % by the year 2008 to that of 4.3 % by the year 2015.
In case of the amount of gross bad loans it is been seen that there is a decline in the
amount of it for the private sector banks from 389.68 billion rupees. As it was 564.73 billion
rupees at the beginning of the 21st century. It was found that the proportion of gross bad loans to
that of the gross advances declined from 11 % to 2 % by the year 2007-08, at 1 % in the year
2001-02 and 17.8 % in the 1996-97 respectively. Similarly, it is been found that the ratio of net
bad loans to that of the net advances in case of the private sector banks has been reduced to that
33

of 0.9 % by the year 2008-09 from that of 5.8 % in the year 2001-02 as well as 9.2 % in the year
1996-97. Notably, it was been found that the downward sloping curve of the proportion of bad
loans to that of the advances is being found to rise in a monotonically upward sloping slope after
the financial crisis in the US by 2008. In case of the private sector banks it is being found that the
ratio analysis of that of the gross loans to that of the gross advances have reached to 5 % by the
year 2015 from that of 2 % in the year 2009. Along with that the ratio measure of net bad loans
to that of the net advances have increased up to that of 2,6 % by the year 2014 from that of 0.9 %
by the year 2009.
This is additionally incorporated that the private sector banks have a declined gross bad
loans to that of 389.68 billion as at the beginning of the 21st century this value of 564.73 billion
rupees whereas the proportion of the bad loans declined significantly to that of 2 % from 11.1 %
by the year 2007-08 after the financial crisis took place in the United States of America. The bad
loans that were present in the open sector banks developed a rate of 4 % within the period of
2004 to that of the year 2012. However, in the monetary years it ascended up to that of 60 % by
the year 2013, 2014 and 2015 respectively. The discounted monetary value of that of the bad
loans was up to 85 % in 2015 as compared to that of 2013. The bank wise separation
demonstrates the fact that in case of State Bank of India it clearly revealed the fact that there was
presence of unrecoverable loans with bad obligations that was found to shoot almost a record
high level of 55.94 billion rupees by the 2013 to that of 213.13 billion rupees by the year of
2015. The consolidated amount of that of the bad loans as compared between that of the year
2014 to that of the year 2015 encompasses 344.90 and 100.00 billion rupees where the total
amount of the bad loans encompassed 239.92 billion rupees within 2004 to 2013. Punjab
34

National Bank is the second largest bank after State banks of India in terms of market
capitalization which have reliably ascended in terms of bad obligation by the year 2013. This is
due to the fact that bank have started with a bad loans obligations of 95 % within the period of 2-
013 to 2014. However, by 2015 it moved by 238 % from 19.47 billion rupees out in 2014 to that
of 65.87 billion rupees by the year 2015. The objective of the open division banks was to rebuild
the loan structure that was inclusive of the assets and the non-performing ones and finished up to
7000 billion rupees. The governor of the Reserve bank of India highlighted this fact that the
amount of bad loans and that of the non-performing assets are too high which if not countered
through the process of effective management techniques then it can outburst as a financial
turmoil over the economy of the country in the long run. The economic recoups should be
tackled in order to ensure that the utilization of the assets should be optimum. The governor of
RBI also incorporated the fact that few banks that are downtrodden due to convergence or non-
utilization of their assets should check the accounts of the banks audit after their characterization
over the two quarters that were finishing by 31st December of 2015 and that of March, 2016.
(Source: http://indianexpress.com/article/india/india-news-india/bad-loan)-financial-year-
rti-rbi-bank-loan-raghuram-rajan-bad-loan....).
Bad loans of SCBs improved by a variety of ways
(Amount in ` Billion)
35

Year S. No. Way of
recovering /
improvement
Lok
Adalats
DRTs SARFAESI
Act
Total
2012 -13 1 No. of cases
passed on
840, 691 13, 408 190, 537 1, 044, 636
2 sum concerned 66 310 681 1, 057
3 sum received back 4 44 185 233
4 3 as % of 2 6. 1 14. 1 27. 1 21. 9
2013 -14 1 No. of cases
passed on
1, 636,
957
28, 258 194, 707 1, 859, 922
2 sum concerned 232 553 953 1, 738
3 sum received back 14 53 253 320
4 3 as % of 2 6. 2 9. 5 26. 6 18. 4
2014 -15 1 No. of cases
passed on
9, 131,
199
171, 113 1, 241, 086 10, 543, 398
2 sum concerned 887 3, 789 4, 705 9, 381
3 sum received back 43 531 1, 152 1, 726
36

4 3 as % of 2 4.8 14 24. 5 18. 4
Source: Statistical table related to banks, RBI, 2015
37

Chapter 4: Findings and Analysis
The specific time that is been taken due to unsettlement of the installments that are being
paid upon the principal in case of the term based loans taken from the banks or the advances that
are being taken as disbursement of the interest upon loan, all are the commonly described form
of Non-performing assets. However, in case of India the notion of loan changes overtime as per
the situation of the bad loans. Reviewing the reports of 1991 of the Narashima Committee report
it can be incorporated that those assets like bills concession, overdrafts, advances as well as cash
credits and other assets is specifically termed as bad loans. Notably, by March of the year 2015
the assets in case of which the allotted amount of interest is not being paid within the stipulated
time frame is terms as bad loans.
It is been found that the commercial banks controls the overall financial setting as nearby
half of the accountability in the financial information reveals this fact that the monetary flow if
the nation is majorly establishes its occurrence through that of the commercial banks. However,
it would be an error if to understand the financial scenario of the Indian banks we do not consider
the case of the Non-Banking Financial institutions (NBFCs) as well as that of the co-operative
banks. The statement of RBI incorporated this fact in one of the section in their report where they
highlighted the importance of that of the NBFCs and theta o the co-operative banks in boosting
the domestic economy through their operations. It is been observed through the reports that the
domestic economy is travelling through a sluggish state whereas then overall state in global
perspective have achieved a moderate level of recovery. The synchronization of the financial
institutions with each other was something that the economic structure of the country was
38

looking for. However, it was been found that the banks was not able to do so as the process of
the financial involvement needs effective synchronization between that of the supervisors of the
financial institutions that should coordinate among each other in financial way to mitigate the
risk associated with that of the management of the risks in the process of bad loans and credit
given by the banks and financial institution so to that of the common people within the economy
those who are involved in the process of distribution, exchange , production and consumption.
Banks in this respect have to encounter certain problems that are specific to the increasing level
of the bad loans. To ensure that the bad loans are recovered in a sustainable manner there is
necessity of implementing effective strategies in the delivery models of the loans and associating
them with that of the recovery procedure.
The competition among the banks can trigger the possibility of monitoring the financial
transactions in a more effective manner and most importantly focus upon the betterment of the
recovery system of the loans that they have given to that of the people for financial purpose. The
banks gets the license shortly though some crucial amendments was the need of the hour in order
to ensure that in the process of recovering the loans there should be less amount of possibility
that the recovery procedure will fail leading the mismanagement of the financial funds and the
performing assets of the bank in case off the Indian banking industry. However, this requires that
the banking arrangements should take place based on its expansion, availability of the resources,
level of competency as well as the intensity of inclusivity with respect to that of the overall
banking sector in India. The below table incorporates the comparison between two of the largest
bank of the Indian banking industry as follows, notably the State bank of India and that of The
Punjab national Bank:
39

Net and the values of Gross Non-Performing Assets (Amount is represented in Crore)
Year
SBI PNB
%GNPA %NNPA %GNPA %NNPA
2009 3. 01 1. 76 1. 55 1. 09
2010 3. 09 1. 72 1. 68 1. 12
2011 3. 28 1. 63 1. 79 1. 23
2012 4. 44 1.82 2. 93 1. 52
2013 4. 75 2. 1 4. 27 2. 35
2014 4. 95 2. 57 5. 25 2.85
2015 4. 25 2. 12 6. 55 4. 06
2016 6. 5 3.81 12. 9 8. 61
2017 6. 9 3. 71 12. 58 7.81
Source: www.moneycontrol.com, www.sbi.co.in, www.pnb.co.in
40

It is been seen from the graphical analysis of the data that is been found in the table
regarding the net non-performing assets of that of State bank of India and Punjab national Bank
that State bank of India have a rise in the total amount of that if the non-performing assets by the
2017 whereas in case of Punjab National bank the value of Non-performing asset is high by the
2016. However, it is also been seen that in case of both the banks the value of the Non-
performing assets have risen significantly after the 2015 and that of 2016. Notably after 2016 it
is been seen that Punjab national bank have shown a downward trend.
In the below mentioned figure it is been seen that the gross non-performing assets has a
monotonically increasing tendency over the year s and the trend analysis of both of the Punjab
National bank and that of the State bank of India has a rise in their values over the years in case
of the non-performing assets. It is been found that from the year 2009 to 2017 the gross non-
performing asset for both of the banks have been fluctuating from time to time. By the year 2014
41

Punjab national Bank have a deceased level of the Non-performing assets while in case of State
bank of India the level of decrease in the overall value of tat of the non-performing asset is by
the year of 2016. This fall that was found in the valuation of the non-performing assets was due
to the fact that there was implementation of effective credit management strategies that siphoned
off the outstanding loans that were not being paid off. However, it was been found that an
increase in the gross non-performing assets for both of the banks after the stated years though the
level of the GNPA for PNB remain stagnant at a particular level after 2016 and 2017.
Table: Net and Gross NPA (Amount in crores)
Year
AXIS HDFC
%GNPA %NNPA %GNPA %NNPA
2009 1. 15 0. 4 1. 12 0. 63
2010 0. 98 0. 4 1. 09 0. 31
2011 1. 01 0. 26 1. 05 0. 2
2012 0. 94 0. 25 1. 02 0. 2
2013 1. 06 0. 32 0. 97 0. 2
2014 1. 22 0. 4 1 0. 3
2015 1. 34 0. 44 0. 9 0. 2
2016 1. 67 0. 7 0. 94 0. 28
2017 5. 04 2. 11 1. 05 0. 33
42

The net non-performing assets in case of that of Axis bank showed a upward rising tendency by
the year 2016 to 2017. However, in case of that of HDFC bank the level of the net non-
performing asset remained at a temperate level.
The figure incorporated below represent the gross non-performing assets in case of the
HDFC and Axis bank. Here it has been seen that both of the banks have a steady upward rising
trend by the period of 2016 and 2017. The movement of Axis bank depicts that the gross non-
performing assets has a little amount of trough by the year of 2011 and 2013 followed by a slow
rise from that of the year 2013 up to 2016. Also after 2016 there is a strip rise in the values of
the GNPA. This is due to the fact there was implementation of few of the credit management
strategies that were not effectively monitored that whether they were able to ensure the recovery
of the credits within the stipulated time for the respective consumers that have defaulted the
credit.
43

Within the two respective figures of that of Gross non-performing assets and that of net
non-performing assets there is some crucial implication as revealed by that of HDFC, Axis, PNB
and SBI. The gross non-performing asset value and the net non-performing asset value is found
to be the highest among the four in case of State Bank of India by the year 2016 to 2017. This is
being follows by Punjab national bank (PNB) as well as Axis bank and HDFC bank respectively.
The values of gross non-performing asset value and the net non-performing asset is lowest in
case of HDFC bank due to their effective management initiatives in case of handling the credit
and ensuring recovery of them within the stipulated time. It is also can be seen that the gross
non-performing asset value and the net non-performing asset are lesser in case of the private
sector banks as compared to that of the public sector bank. Moreover,, it is also been seen that
the increase in bad loans in case of the private sector banks is been observed by 2013 due to
effective credit management policies for the private banks that have significantly in case of the
public sector banks.
44

Table: Return on Assets (ROA) of private and public sector banks
Year SBI PNB HDFC Axis
2012 88% 119% 180% 168%
2013 91% 100% 190% 170%
45

2014 65% 64% 200% 178%
2015 76% 53% 200% 183%
2016 46% -61% 192% 172%
2017 41% 19% 188% 65%
There is an upward trending move of the return on assets in case of the public sector
banks however Punjab national bank has a negative return in 2016. It is also been seen that
private sector banks have a rising tendency within the stated years. By the year 2017 there is an
decrease in the values of the return on assets for Axis bank.
46

2015 4.63 4.97 2.11 2.5 2.92 0.94 23.95 84.69 5.6 6.27 7.35 2.3 10.54 12.16 4.58
2016 7.71 9.29 2.79 4.65 5.73 1.35 44.52 66.7 8.39 4.65 4.13 1.63 11.11 13.26 4.39
2017 9.2 11.03 4.19 5.3 6.47 2.19 49.72 77.52 13.03 2.49 3.02 1.08 11.58 13.9 5.24
Public
sector
Public
sector
Private
sector
Public
sector
Private
sector
Private
sector
Net NPA/Net Worth
Standard structured advances/Net
advances Stressed Assets/ Gross advances
Overall Overall Overall
As on
March 31st
Public
sector
Private
sector
Public
sector
Private
sector
Gross NPA/Net NPA
Overall
Net NPA/ Net Advances
Overall
Table: Assets quality of private and public sector banks
Source: CARE Ratings & Banks, June-August 2017
The aforementioned table as well as the figure in the ratios of that of gross non-
performing asset value and the net non-performing asset is more in case of the public sector
banks as compared to that of the private sector banks which is being found that gradually have a
rising trend over the years from 2015 to that of 2017.
47

The aforementioned figure shows that the ratio of gross non-performing asset value and
the net non-performing asset has increased as a sharp rise by 2015. This forces a stress due to
rise in loans and advances as the amount of bad loans have risen significantly. The credit
management initiatives are being take though it lacked in the implementation of the credit
administration for the public sector banks. The efforts that are being rendered are not
significantly executed as the efficiency have fallen and search regarding the bad loans is not
being made.
48

It is been indicated from the above that the percentage of ratio for the net worth coverage
for the gross non-performing asset value and the net non-performing asset against that of the bad
loans are backed with creation of provision. It was been assumed that there is no initiatives taken
in order to recover the bad debts in case of public sector banks against their bad debts as the
ratios showed that the net worth is eroded. For this reason the public sector banks have a higher
ratio as compared to that of the private sector banks. By the year 2015 this value is 84.6 % that
dropped up to 66.7 % for private sector bank. Moreover, it is also being found that it have raised
to 77.52 % by the year 2017.
49

It is been indicated from the above that the percentage of ratio for the standard
structured assets to that of the net advances have a downfall from 2015 to that of 2017 in case of
both the public sector as well as the private sector banks. For the gross non-performing asset
value and the net non-performing asset against that of the bad loans are backed with creation of
provision. It was been assumed that there is no initiatives taken in order to recover the bad debts
in case of public sector banks against their bad debts as the ratios showed that the net worth is
eroded. For this reason the public sector banks have a higher ratio as compared to that of the
private sector banks. By the year 2015 this value is 84.6 % that dropped up to 66.7 % for private
sector bank. Moreover, it is also being found that it have raised to 77.52 % by the year 2017.
50

The aforementioned figure reflects the fact that the ratios of the stress assets to that of the
gross and net advances is found to be constant in the 3 years of period of 2015, 2016 and 2017
respectively. It is also been seen that the private sector banks have a higher level of stressed
assets as compared to that of the public sector banks though the ratio has a low capitalization
level which is higher. The stressed assets include restructuring of loan along with that of the bad
loans and the assets should be written off.
PNB SBI AXIS
HDF
C
Mean
12266. 5
26,645.
22 1717
779.
44
Standard Deviation
13167. 11
18,498.
27 2693. 12
515.
69
SD/ Mean 107% 69% 157% 66%
51

The aforementioned table indicates the fact that in the public sector banks like that of
Punjab national bank is holding a better position as compared to that of the State Bank of India
as the respective standard deviation from that of their mean is low in case of Punjab national
Bank as compared to that of the State bank of India. Since the measure of dispersion is low
hence this incorporates the fact Punjab national Bank has a better financial position. Similarly,
based on the same ground it is also been seen that HDFC bank have a better financial position
compared to that of Axis bank.
Limitations of the Research
The limitation of the research comprises of the fact that the research is limited in certain
respect that can be highlighted as follows:
 Since the data that is taken under consideration is not primary data rather is taken from
the secondary source hence it is a secondary which is limited to the number of
observations undertaken in the study of the research as well as the errors involved in the
research whether it be human error or non-human error. Moreover, this incorporates a
percentage of biasness in this research as it is dependent upon the authenticity of the
research of the research data sources.
 There is less number of banks that is been taken under consideration in this study for
representing a simplified model. Thus, the comparison of the two different segment of the
banks are analyzed within the limited number of banks data and hence may not be
considered as a ideal representation of the public sector and private sector bank.
52

 Limitation exists in terms of the availability of the resources and the time undertaken to
conduct the research
Chapter 5: Conclusion & Findings
The fluctuation in the market regarding the monetary condition and the economic
business cycles that traverse through boom and trough it is been seen that the condition of the
banks in the Indian banking industry is a matter of concern for the last few decades.
Moreover the banks were found to focus much more upon segregating loans and rendering
them to the public. This was done in order to implement more financial mobility into the
Indian banking market. The endeavor of the banks was to increase the number of loans as
this will increase the circulation of money within the economy. However, the banks provided
less focus upon the recovering those loans and reinvesting them. They may work upon
supporting the individuals that are defaulter of submitting their loans within thee stipulated
time. The growth of the assets was given focus but not the performance of the assets that
have already entered the market as a productive asset yet remained unutilized. The
performance of the private sector bank is better as compared to that of the public sector bank
though there exists significant gap between the two and similarity between the two that can
be discussed as follows:
The salient aspects can be reflected from the analysis as follows;
53

1. The deliberate loan defaults, administration of credit in a poor manner, poor arrangement of
the loan endorsements without any sort of investigations, as well as improper monitoring of
the loans that are taken for agrarian purpose.
2. Private sector banks are stronger in their performance regarding the recovery of the bad loans
and related non-performing assets as compared to that of the public sector banks
3. A sharp fall is been observed in the level of gross non-performing assets in case of Punjab
National bank (PNB) by 2014 and for State bank of India (SBI)
4. There is an expanding pattern observed for the Gross non-performing assets in case of both
of Punjab National bank (PNB) by 2014 and for State bank of India (SBI)
5. It is been observed that the Net Non-performing asset levels are higher in case of State bank
of India in the year 20117 compared to Punjab national bank and higher in case of Punjab
national Bank by the Year 2016 as compared to that of State bank of India
6. The ascending pattern for both the banks is been observed by the year 2015-2016 while after
the year 2016 Punjab National bank reflected a downward pattern of movement
7. The values of net non-performing asset has faced a constant trend in case of HDFC bank
throughout the year
8. The gross non-performing asset and the net non-performing asset are higher in case of State
bank of India by the year 206 and 2017 which is trailed by Punjab national bank followed by
Axis Bank and finally HDFC bank respectively. However,, both of the levels of gross non-
performing asset and the net non-performing asset are lower in case of HDFC bank
54

9. The credit management initiatives in case of the private sector banks are better in case of the
public sector banks though for both the banks it is not up to the mark in the Indian banking
industry
10. The return on assets is good in case of the public sector banks however Punjab national bank
reflected a negative return on assets. On the other hand it is also been found that the other
private sector banks has an expanding pattern of return on assets through the years.
11. The administration of the asset quality is better in case of State bank of India (SBI) in
comparison to that of Punjab national Bank (PNB). However, if there is the occurrence of the
private banks and comparison is made upon them then it can be said that the asset
administration quality is better in case of Axis ban which is in direct correlation with that of
HDFC bank.
12. With the progression of time it is been observed that both public sector banks as well as the
private sector bank has an expanding pattern in their net non-performing assets.
The credit convalescence strategies should be stressed by the banks individually by
systematizing their methods of credit providence as well as the way they implement to recover
them from the clients within a stipulated time frame. They may endeavor to render loans to those
clients that are financially sound through the process of examining the hazard bearing limits.
The stringent arrangements for influencing the persuasion of loans should be backed with proper
legislature and not only this it is important that the banks should understand the client situation
and should create significant provision that will help them to fulfil their purpose of loan
providence as well as empowering them towards loan recovering.
55

Causes that led to rising bad loans
The banking industry of India is traversing through the crucial financial turmoil of not
able to recover the amount of loan that they have dispensed in to the market (Arora and Ostwal,
2014). It is important to understand for the banking sectors of the country to implement effective
policy measurement as well as strategize effective measures for recovering the loans. It is been
found that both the private and the public sector banks are struggling to recover the loans for
which their financial condition is deteriorating. However, the public sector banks are performing
in a poor state in comparison to that of private sector banks. Still on an overall basis banks of
both the sectors are not performing up to the mark. This is due to the reason that the banks are
able to focus upon dispensing the funds as loans to the potential clients though it is being
observed that the big borrowers are not submitting their loans on time that is affecting the
liquidity of the banks. Hence, the objective of the banks should not only focused upon dispensing
loans to borrowers but also to set proper strategy to recover them. This can be effectively done if
the banks not only focus upon monitoring the loans at their disposal but also upon focusing how
the assets are being utilized. They should restrict the non-circulation of the loans and let them
become bad loans. They should focus upon how the loan are being utilized and whether they are
not becoming bad loans or not. Clearly, emphasizing on this issue effective regulatory strategies
should be implemented not only to siphon of the funds of the banks to the common people which
will be exchanged, distributed, consumed within the country but also will focus upon
empowering the borrowers and guiding them in order to optimize the utilization of the assets.
The banks should give emphasis upon the systematized approach that will help the clients to
understand how the investments that they have taken as loan from the banks can be optimally
56

utilized so that the future earnings from the present investment will be more than the interest
added upon the principal that is being taken as loan from the bank. This will help the clients to
enhance their potentiality of paying back the loans. Moreover, the banks will also be able to
acquire their funds that they invested in the form of loams. Simultaneously, not only the banks
will become capable of acquiring their loan amounts as well as they will be able to develop their
clients in a more financially sound manner. The banks should also performing in a segmented
manner where separate provisions will be allotted for the clients that are taking loans for the
purpose of home loans, for agrarian purpose or for buying other form of assets. This will help the
banks to understand the ability of the clients to pay the loan back as well as will not dishearten
the clients as they may feel guilty for not able to pay back their dues to the bank that the have
taken as loans. The percentage of interest that would be charged upon the clients should be
equivalently determined with respect to the macroeconomic factors that affects the ability of the
clients to payback the loans. Moreover, such initiative will ensure that the clients are able to pay
their money as well as also are able to utilize them for their own benefit based on the availability
of the resources and the capital structure of the loans in installments. The financial support is not
only limited in providing loans by the banks but also upon the ability of the banks to provide
guidance to the clients that show they may utilize their funds in order to fulfil their greater
interest. Effective database management should be maintained as well as monitored by the banks
regarding the in order to keep all the details of the funds that are being given to the clients and
how they are able to utilize those funds in order to ensure greater future return upon the assets
that are being taken as loan from the banks by the clients. This the banks will not only become
able to utilize the assets as well as will be able to create potential clients and empower them
57

successfully. The number of bad loans will get reduced followed by acquisition of new clients
and their ability to capitalize the loans optimally will increase. Moreover, the rise of the
programs like IRDP, RREP, PMRY, JRY, SEPUP, SUME, etc. are being implemented by the
governing banking authorities of the country in order to reduce the aspects of non-performing
assets and ensure progress of the economy as a whole not only including the banks and non-bank
financial institutions but also the clients by boosting them towards the way how the loans can be
utilized and restrict the assets from becoming non-performing. On this regard it can be
incorporated that the role of the central bank of the country in India that is the Reserve bank of
India is very crucial in siphoning of monetary funds as well as bills and other assets into the
market followed by regulating thee economic balance an setting the interest rates for both the
private sector as well as the public sector banks.
Curative Measures
On this regard it can be incorporated that the DRT Act is an important aspect of concern
for implementing the strategies and ensuring that the banks are able to recover their bad loans
along with restricting other assets to become non-performing and simultaneously creating new
potential clients and boosting the economy as a whole. The managing officers are dealing with
80 to 90 such cases on each and everyday and hence the proposed DRT act is one of the
corrective measure that can be implemented by the government to ensure rapid transfer of the
recuperation cases. The delays in the processing of transactions can be cancelled due to refusal
by the litigants for acknowledging the summons and again ensure the progression of the
restricted transactions. Thus as per the DRT act it can be said that the process not only ensure
safe recovery of the loans but also builds an effective platform through which the process of
58

recovery of loans can be done through empowering the clients that are undertaken the loans for
maximizing own objectives within the stipulated time frame. From an overall aspect it is a
preventive measure of to restrict the assets of the banks from getting non-performing as well as
making sure that the assets are effectively utilized at their optimum level by the potential clients
in a financially sound manner. Enforcement of appropriate security system are also essential
which will be taken under consideration through this process and any form of default will get
pre-informed to the bank authorities before they become non-performing. This may constraint
the discounted loans for borrowers but also on the other hand will be able to restrict the
nonperformance of the loans and any banking assets to get on to criminal hands. The role of the
government on this regard is very important for generating awareness within the common people
of the country by revealing them that how the non-performance of the assets is facilitating the
lowering of productivity of the country’s overall assets. The plans that will be implemented on
this regard will boost the notion of the clients regarding effectively utilizing the loans that they
have taken from the banks as well as will methodically help the banks to guide their non-
potential clients to become financially sound and earn better future earnings from the present
investments that are made by them. If this gets implemented then there will be less probability of
non-performance of the loans and hence possibility of the bad loans will not arise. The asset
utilization of the banks will increase followed by creation of new potential clients and
empowerment of them through utilization of the capital as well as other assets that are invested
for acquiring higher future returns upon their optimal utilization in the market. The government
support plans and the role of the Reserve bank of India will boost the asset utilization system
from each unit individuals followed by aiding the recuperation. This will extensively enhance the
59

performance of the banks and the banks will simultaneously be able to support effectively the
clients in the loan utilization as well as maintaining provision of bad loans and reducing the
proportion of non-performing assets as most of the assets are getting utilized and hence the asset
utilization rates are getting higher. The overall banking framework will become versatile,
stringent as well as will be able to outweigh the global market fluctuations in international as
well as national sphere that may affect the Indian economy as a whole. The credits that will be
provided by the banks will get balanced by the debuts that they will get within the stipulated time
frame and hence the uniformity between the assets and enhancement in their productivity will get
increased. Depletion of capital will not take place rather effective budgetary policy will back the
overall banking system of the Indian economy.
60

References
Anand, N. (2018). India’s bad loan problem ranks among the world are worst. [Online] Quartz
India. Available at: https://qz.com/india/1166910/npa-crisis-indias-bad-loan-problem-
ranks-among-the-worlds-worst/ [Accessed 12 Aug. 2018].
Abidi, S., & Joshi, M. (2017). Rising NPAS: Could There Be Behavioural Causes? SSRN
Electronic Journal. doi: 10. 2139/ssrn. 2894752
Arora, Nancy & Ostwal, Nikita, (2014).―Unearthing the Epidemic of bad loans: A Study of
Private and Public-Sector Banks, Management Insight, SMS Varanasi, Vol. X, No. 1
Arora, P., & Arora, H. (2017). Bank characteristics, ownership and profitability of commercial
banks: panel evidence from India. International Journal Of Services And Operations
Management, 26(3), 347. doi: 10. 1504/ijsom. 2017. 10002778
Bhandari, R. (2016). An empirical study on NPA and its impact on profitability with special
reference to Punjab National Bank. Asian Journal Of Management, 7(4), 272. doi: 10.
5958/2321-5763. 2016. 00041.
Bhaskaran, R., Bhalla, L., Sarin, V., Kaur, S., Rahman, A., & Singh, G. et al. (2016). Non-
61

performing assets of public and private sector banks in India - a comparative study.
International Journal Of Services And Operations Management, 25(2), 155. doi: 10.
1504/ijsom. 2016. 078891
Bhatt, M., & Panda, R. (2017). Managing bad loans of Indian Banks: Recent Developments.
FIIB
Business Review, 6(4), 10. doi: 10. 5958/2455-2658. 2017. 00002.8
Bhavani Prasad, G. and Veena, V.D. (2011).“NPAS in Indian banking sector trends and issues,”
Journal of Banking Financial Services and Insurance Research, Volume No. 1, Issue 9,
2011, Pp 67-84
Chaudhary, S., & Singh, S. (2012). Impact of Reforms on the Asset Quality in Indian Banking,
International Journal of Multidisciplinary Research Vol. 2(1). 13-31.
Das, S., & Dutta, A. (2014). A Study on NPA of Public Sector Banks in India. IOSR Journal Of
Business And Management, 16(11), 75-83. doi: 10. 9790/487x-161117583
Dash, P. (2016). The Impact of Public Investment on Private Investment: Evidence from India.
Vikalpa, 41(4), 288-307. doi: 10. 1177/0256090916676439
Dhar, S. (2016). Management of Non-Performing Assets in Indian Banks and its Challenges.
SSRN Electronic Journal. doi: 10. 2139/ssrn. 2775554
62

Debnath, R., & Shankar, R. (2008). Measuring performance of Indian banks: an application Data
Envelopment Analysis. International Journal Of Business Performance Management,
10(1), 57. doi: 10. 1504/ijbpm. 2008. 015921
Dhamu, J., & Vohra, P. (2012). NPA management-Always a critical issue for banking industry.
Journal Of Banking, Information And Management., 9(2), 25-32.
Durafe, A. and Singh, M. (2016). “Cyclical Behavior of Public and Private Sector Banks: A
Comparative Study of Non-performing Assets” Vol. 1, No. 1, pp. 14-25
(http://dx.doi.org/10. 3126/jbmr.v1i1. 14548)
Ganapathy, S., Alagarsamy, T., & Raguraman, M. (2017). Monetary mobilization of commercial
bank with special reference to Eastern region of India. SAARJ Journal On Banking &
Insurance Research, 6(5), 20. doi: 10. 5958/2319-1422. 2017. 00022. 4
Gayathri, P. (2011). An Assay on the Incitements of Non- Performing Assets with Allusion to
Indian Overseas Bank”. Indian Journal Of Applied Research, 4(4), 337-339. doi: 10.
15373/2249555x/apr2014/104
Ghosh, S (2005). Does Leverage Influence Bank’s Non-Performing Loan?: Evidences from
India.
Applied Economic Letters, 12 (15): 913-18.
Godlewski, C., & Sanditov, B. (2017). Financial Institutions Network and the Certification Value
63

of Bank Loans. Financial Management, 47(2), 253-283. doi: 10. 1111/fima. 12197
Goodell, J. (2015). Do For-Profit Universities Induce Bad Student Loans?. SSRN Electronic
Journal. doi: 10. 2139/ssrn. 2911739
Gupta, A. (2010). Non-performing assets (NPAs) in Indian banks. Saarbrücken: LAP
LAMBERT Academic Publishing.
Gupta, B. (2012),―A Comparative Study of Non-Performing Assets of SBI & Associates and
Other Public Sector Banks‖ ,SIT Journal of Management, Vol. 2, No. 3,175-189
Gurumoorthy, D., & Sudha, B. (2011). Non-Performing Assets (A Study With Reference To
Public Sector Banks). Indian Journal Of Applied Research, 2(2), 7-9. doi: 10.
15373/2249555x/nov2012/3
Ho Han, J. (2017). Does Lending by banks and non-banks differ? Evidence from small business
financing. Banks And Bank Systems, 12(4), 98-104. doi: 10. 21511/bbs. 12(4). 2017. 09
Joseph, A. L. and Dr. Prakash, M. (2014). “A study on Analyzing the Trend of NPA level in
Private Sector Banks and Public Sector Banks”. International Journal of Scientific and
Research Publication, Volume 4, Issue 7
Karunakar, M. (2008). “Are non - Performing Assets Gloomy or Greedy from Indian
Perspective,
64

Research Journal of Social Sciences, Vol. 3, pp. 4-12.
Kaur, Harpreet and Pasricha, J. S (2004). “ Management of bad loans in PSBs “,The Indian
journal of commerce, April –June, vol. 57,no. 2, pp. 14-21.
Kaveri, V. (2015). Sale of Non Performing Assets (bad loans) to Asset Reconstruction
Companies in India: An Overview. Journal Of Commerce And Management Thought,
6(2), 226. doi: 10. 5958/0976-478x. 2015. 00014. 2
Khanna P. (2012).―Managing NPA in Commercial Banks‖, Gian Jyoti e-journal, Vol. 1, Issue 3
King, R. G. and Levine, R. (1993). Finance and Growth: Schumpeter Might Be Right. Quarterly
Journal of Economic, 108 (3): 717-37.
Koester, U. (1991). The experience with liberalization policies. European Economic Review,
35(2-3), 562-570. doi: 10. 1016/0014-2921(91)90158-f
Kumar, P.T. (2013). “A Comparative study of NPA of Old Private Sector Banks and Foreign
Banks”, Research Journal of Management Sciences , Vol. 2, no. 7, pp. 38-40. ISSN
2319–1171.
Kumar, D. (2013). Management of non-performing assets (NPAS) in Indian commercial bank.
Delhi: Academic Excellence.
Laeven, L., (2013). “Corporate Governance: What’s Special About Banks?”, Annual Review of
65

Financial Economics, 5: 63-92.
Mashoof, H., & Alizadeh Meshkani, F. (2014). Strategic positioning in banking industry:
Evidence from banking industry. Management Science Letters, 4(8), 1715-1724. doi: 10.
5267/j.msl. 2014. 7. 012
Mehta, L., & Malhotra, M. (2014). Empirical Analysis of Non Performing Assets Related to
Private Banks of India. International Journal Of Management Excellence, 3(1), 386. doi:
10. 17722/ijme.v3i1. 156
Mohan, R., & Ray, P. (2017). Indian financial sector.
Mor, N. and Sharma, B. (2003). Rooting out Non-performing Assets. Paper presented at the 5th
annual conference on Money and Finance in the Indian Economy, at IGIDR, Mumbai.
Narula, S. and Singla, M. (2014). “Empirical Study on Non Performing Assets of Bank”,
Empirical Study on Non Performing Assets of Banks.
Pankaj, B., & Banerjee, A. (2012). Loan Covenants: Evidence from India. SSRN Electronic
Journal. doi: 10. 2139/ssrn. 2136733
Poongavanam S, (2011).” Non performing assets: Issues, Causes and remedial Solution, Asian
Journal of Management Research”, Vol. 2, Issue 1, pp 123- 132
Prasad Bhavani, G.V. & Veena,D.(2011).―bad loans “ Reduction Strategies for Commercial
66

Banks in India”, IJMBS, Vol. 1, Issue 3
Prasad, K., & Reddy, B. (2011). Management of Non-Performing Assets in Andhra Bank. Indian
Journal Of Applied Research, 2(2), 13-15. doi: 10. 15373/2249555x/nov2012/5
Rai, K. (2012). “Study on performance of bad loans of Indian commercial banks. Asian Journal
Of Research In Banking And Finance, Vol. 2, Issue 12.
Ray, P. (2008). Commercial banks and monetary policy in India. New Delhi: Academic
Foundation.
Reddy, Prashanth K.(2002). “A comparative study of Non Performing Assets in India in the
Global context - similarities and dissimilarities, remedial measures.” Available at SSRN:
http://ssrn.com/abstract=361322 orhttp://dx.doi.org/10. 2139/ssrn. 361322
Satpal, (2014). ―A Comparative Study of Non-Performing Assets in Public Sector Banks and
Private Sector Banks in New Age of Technology‖, International Journal of Current
Engineering and Technology, Vol. 4, No. 4
Satyanarayana, K. & Subrahmanyam, G. “Anatomy of bad loans of Commercial Banks.”
Applied Finance, Volume 6, No. 3, July, 2000, pp 14-26.
Seth, N. (2009). Banking Reforms in India: Problems and Prospects. SSRN Electronic Journal.
doi: 10. 2139/ssrn. 1511122
67

Sharma, M. (2014). Empirical study of Non Performing Assets in Indian Commericial banks.
Saarbrücken: Scholars' Press.
Shukla, J., & Bajpai, G. (2010). Mathematical Criteria for Stability of NPA growth Improving
Quality of Service for Banks. International Journal Of Trade, Economics And Finance,
1(2), 211-214. doi: 10. 7763/ijtef. 2010.v1. 39
Singh, J. (2013). “Recovery of bad loans in Indian commercial banks.”, International Journal Of
Transformation in Business, Vol. 2, Issue 3.
Singh, C. (2016). Stressed Assets and Banking in India. SSRN Electronic Journal. doi:
10. 2139/ssrn. 2760198
Zhang, C. (2014). Bad Loan Externalities: Evidence from the Syndicated Loan Market. SSRN
Electronic Journal. doi: 10. 2139/ssrn. 2492926
68