NPA Asset Classification :

NPA assets are classified in three categories

Sub Standard Asset

Doubtful Asset

Lost Asset
The table below shows the amount of asset in each category and their yearly growth
Substandard
asset
%
(Millions)
Growth

Year

Doubtful
Asset
(Millions)

%
Growth

2059

Loss
(Millions)

%
Growth

2004

565.5

731.6

2005

1642.2

190.40%

1716.1

-16.65%

1033.4

41.25%

2006

2921.4

77.90%

866.1

-49.53%

1301.4

25.93%

2007

3759.4

28.68%

1057.5

22.10%

1760.7

35.29%

2008

6084

61.83%

750.3

-29.05%

2235.4

26.96%

2009

16474.7

170.79%

1858 147.63%

1548.1

-30.75%

2010

10640.9

-35.41%

3593.4

93.40%

3984.6 157.39%

2011

7439.6

-30.08%

4777.7

32.96%

4767.5

19.65%

2012

9,692.80

30.29%

5,755.40

20.46%

4583.5

-3.86%

2013

9,508.50

-1.90%

9,209.50

60.01%

5,021.20

9.55%

2014

15,345.00

61.38%

11,142.20

20.99%

4,520.30

-9.98%

18000
16000
14000
12000
10000

Substandard asset (Millions)

8000

Doubtful Asset (Millions)

6000

Loss (Millions)

4000
2000
0

Loss Assets increased at a constant rate over the years indicating stability. But There is high
volatility in substandard assets. Doubtful assets are increasing every year and from 2008 it is
growing at faster pace than the previous years.
Doubtful Assets:
Doubtful assets can be further classified into three categories

D1

D2

D3

The below table shows the data for the same from 2009 onwards
Year

D1 (Millions) Growth(%)

D2 (Millions) Growth(%)
206.1

D3 (Millions) Growth(%)

2009

1610.1

41.8

2010

3079.1

91.24%

203.6

-1.21%

310.7

643.30%

2011

3602.4

17.00%

896.7

340.42%

278.6

-10.33%

2012

3,535.10

-1.87%

1,854.80

106.85%

365.50

31.19%

2013

4,953.40

40.12%

3,309.50

78.43%

946.6

158.99%

2014

4,035.20

-18.54%

5,809.90

75.55%

1,297.10

37.03%

7000
6000
5000
4000

D1 (Millions)
D2 (Millions)

3000

D3 (Millions)
2000
1000
0
2009

2010

2011

2012

2013

2014

Elasticity of Credit
Elasticity of credit w.r.t to GDP denotes % change in credit associated with % change in GDP.
It is essential to know the link between these two because it helps a bank to formulate
policies based on GDP growth rate.
Model Summary

Model

.973a

R Square

Adjusted R
Square

.947

.944

Std. Error of
the Estimate
.221361225730
3

a. Predictors: (Constant), LOG_GDP

As per regression analysis on the data points taken since the inception of HDFC Bank, Rsquare value of 94.7% indicates that the model is fairly accurate in predicting the elasticity
of credit and in more precise terms, the model explains 94.7% variability of data around its
mean.
Coefficientsa

Unstandardized Coefficients
Model
1

Std. Error

(Constant)

-15.570

1.137

LOG_GDP

3.025

.173

Standardized
Coefficients
Beta

.973

Sig.

-13.700

.000

17.451

.000

a. Dependent Variable: LOG_CREDIT

Coefficient of LOG_GDP comes out to be 3.025 which indicates that 1% change in GDP is
associated with 3.025% change in credit of HDFC bank. So, the elasticity of credit is 3.025
with respect to GDP.
Elasticity of credit for banking industry is 1.28. If we compare elasticity of credit of HDFC
bank with that of the banking industry, it can be concluded that credit elasticity of HDFC
bank is more than that of banking industry. So, GDP growth rate affects HDFC bank more
than an average bank in the industry i.e. a positive GDP growth leads to much higher credit
by HDFC bank and its business gets fortified with GDP growth.

Elasticity of CD Ratio
Elasticity of CD ratio w.r.t to GDP denotes increase in CD ratio associated with % change in
GDP. It is essential to know the link between these two because it helps a bank to formulate
policies based on GDP growth rate.
Model Summary

Model
1

R
.898a

Adjusted R
Square

R Square
.806

Std. Error of
the Estimate

.795

.06976

a. Predictors: (Constant), LOG_GDP

As per regression analysis on the data points taken since the inception of HDFC Bank, Rsquare value of 80.6% indicates that the model is fairly accurate in predicting the elasticity
of credit and in more precise terms, the model explains 80.6% variability of data around its
mean.
Coefficientsa
Standardized
Unstandardized Coefficients Coefficients
Model
1

Std. Error

(Constant)

-2.405

.358

LOG_GDP

.459

.055

Beta

.898

Sig.

-6.714

.000

8.402

.000

a. Dependent Variable: CD_RATIO

Coefficient of LOG_GDP comes out to be 0.459 which indicates that 1% change in GDP is
associated with increase of 0.01*.459 in CD ratio of HDFC bank. So, the elasticity of CD ratio
is 0.459 with respect to GDP.
Elasticity of CD ratio for banking industry is -0.023947. If we compare elasticity of CD ratio of
HDFC bank with that of the banking industry, it can be concluded that CD ratio increases
with positive GDP growth for HDFC bank while CD ratio decreases with positive GDP growth
for banking industry. Also, magnitude of increase in CD ratio is much higher for HDFC bank.

Appendix
8. Elasticity of Credit & CD Ratio

CREDIT & CD ELASTICITY.sav

CD_OUTPUT.doc

CREDIT_OUTPUT.do
c

CREDIT VS GDP AND NPA VS GDP GROWTH

The rapid increase in credit in an economy is now commonly perceived to be one of the
leading indicators of financial instability. This view has been reinforced by the aftermath of
the international financial crisis, which commenced mid 2007. A key policy response has
been to focus on the ratio of private sector credit to GDP for an economy, observing, in
particular, significant deviations be-tween the actual and long-run trends of the ratio
As a result of the established link between credit booms and financial crises, excessive credit
growth is now generally considered a reliable early warning indicator. Traditionally, for
most western countries, the amount of credit provision in an economy was directly related
to the level of deposits within the financial system. However, over the past 10 to 15 years,
financial innovation saw the link between credit and deposits broken with the consequent
result of a general increase in credit provision. This sizeable build-up of credit has been
identified by many as being one of the main contributing factors to the financial crisis, which

originated in mid 2007. As a result, greater attention is now focusing on determining what
the steady-state level of credit should be for an economy and benchmarking this against the
actual levels which pertain at a point in time
From a macro prudential perspective, the ratio of private sector credit to GDP has become
an increasingly popular benchmark of the sustainable levels of credit
In examining the ratio of credit to GDP, we determine the presence of a number of
dierent states in the relationship between these variables over the period . Based on this
analysis, we determine the steady-state relationship between credit and GDP and then
perform scenario analysis to see what would have happened to if credit in the economy had
grown more in line with deposit level growth over this period.
In modeling a relationship between credit and GDP, it has been observed by researchers
that there may have been significant benefits to linking credit expansion with that of
deposits. analysis suggests that had credit growth been set relative to deposits in the precrisis period, by late 2008/early 2009 the level of GDP would have been higher than the
actual level.
As a result of the established link between credit booms and financial crisis, excessive credit
growth is now generally considered a reliable early warning indicator. The issue in
calibrating an early warning indicator is identifying credit growth that is justifiable based on
economic fundamentals, and credit growth that may be deemed excessive.

YEAR

GDP in
Crores

CREDIT in
crores

CREDIT
GROWTH IN
%

2000

2,246,276

3462

2001

2,342,774

4636

33.91

2002

2,472,052

6813

2003

2,570,690

11754

GROSS NPA
in crores

GDP
GROWTH in
%

NPA
GROWTH in
%

146

4.30

20.66

46.96

222

5.52

52.05

72.52

265

8.45

19.37

121

2004

2,777,813

17745

50.97

335

8.06

26.42

2005

2,971,464

25556

44.02

439

6.97

31.04

2006

3,253,073

35061

37.19

508

9.48

15.72

2007

3,564,364

46944

33.89

657

9.57

29.33

2008

3,896,636

63426

35.11

906

9.32

37.90

2009

4,158,676

98883

55.90

1988

6.72

119.43

2010

4,516,071

125831

27.25

1816

8.59

-8.65

2011

4,937,006

159983

27.14

1694

9.32

-6.72

2012

5,243,582

195420

22.15

1999

6.21

18.00

2013

5,503,476

239,720

22.67

2334

4.96

16.76

2014

5,764,553

303,000

26.40

2988

4.74

28.02

RELATIONSHIP BETWEEN GDP GROWTH AND CREDIT GROWTH

REGRESSION

CREDIT GROWTH=28.503+1.341*GDP GROWTH

RELATIONSHIP BETWEEN GDP AND NPA GROWTH

Consistently rising non-performing assets (NPAs) have become a serious concern for the
Indian banking system today. A widely held notion in this regard is that high interest rates
and slowing economic activity have impacted viability of project INVESTMENTS , thus
affecting revenue streams and in turn their ability to service debt.
GDP growth is an important factor that affects NPAs and there is a negative relation: higher
growth leads to lower NPAs. As the study includes lags, the second lag also has a significant
impact on NPAs.

REGRESSION

NPA GROWTH=24.912*0.251*GDP GROWTH