Impact of NPA of Dena Bank

Introduction:
In July 1969 the Government of India nationalized Dena Bank, along with thirteen
other major banks. It is now a Public Sector bank constituted under the Banking Companies
(Acquisition & Transfer of Undertakings) Act, 1970. Under the provisions of the Banking
Regulations Act 1949, in addition to the business of banking, the Bank can undertake other
business as specified in Section 6 of the Banking Regulations Act, 1949.

In the starting when the financial reforms were undertaken by the Government of
India based on the Narasimham Committee report I and II, Reserve Bank of India introduced
some prudential norms to address the credit monitoring policy, which were being pursued by
the banks and other NBFCs. To strengthen the recovery of loans and dues by the banks and
the other financial institutions, Government of India in the year 1993, promulgated the
recovery of debts due to banks and other financial institutions act and the securitization and
reconstruction of financial assets and enforcement of security interest act in the year 2002.

But statistics shows NPA level is ever increasing day by day, and the said act, which
was introduced by the Government of India, is not serving the purpose, they were actually
formed. The reason behind it can be the bank‟s approach and attitude towards financing and
recovery of loans especially from the small and medium enterprises and also the lack of
knowledge about the law and its practice in banking and also violations of the RBI
directives/circulars, which are essential to follow by every bank and financial institutions.

In the financial year 2013, the non-performing assets had gone up to Rs. 95825 crores,
according to the CRISIL report, the gross NPA will increase from 3.3% on 03.2013, to 4% by
03.2014. An important question is to be answered by the banks and other financial institutions
about the recovery of the dues, and banks approach towards focusing on the „efficiency and
fairness‟ and also become understanding when dealing genuine difficulties in managing the
fraud. A strong banking and financial sector is important for a developing economy and the
failure of which may have adverse effect on all the sectors.
Profile of the organization

Dena Bank was founded on 26 May 1938 by the family of Devkaran Nanjee under the
name Devkaran Nanjee Banking Company. It adopted its new name, Dena
Bank (Devkaran Nanjee), when it incorporated as a public company in December 1939.
In July 1969 the Government of India nationalized Dena Bank, along with thirteen
other major banks. It is now a Public Sector bank constituted under the Banking Companies
(Acquisition & Transfer of Undertakings) Act, 1970. Under the provisions of the Banking
Regulations Act 1949, in addition to the business of banking, the Bank can undertake other
business as specified in Section 6 of the Banking Regulations Act, 1949.
1969

The Bank was brought into existence by an Ordinance issued on 19 th July, by the Central
Government. The Bank is a Government of India Undertaking and carries on all types of
banking business.

1970

The Bank Companies Act, 1969, was declared null and void by the Supreme Court on the
10th February and was made effective retrospectively from 19th July, 1969.

Under the `Lead Bank' scheme the Bank was allotted 9 districts of which 6 were in
Gujarat, 2 in M.P. and one in the Union Territories of Dadra and Nagar Haveli.

1971

Branches were opened in most of the lead districts. Bank took up second stage of the lead
bank scheme. District level consultative committees were set up in all the districts.

1978
 The Bank had set up its first regional rural bank in the Kutch district of Gujarat State in
December.

1980

The second regional rural bank was set up in March at Rajnandgaon in Madhya Pradesh.

1981

The Third Regional Rural Bank was set up at Patna.

1984

The Bank sponsored its fourth Regional Rural Bank at Himatnagar in Gujarat. Rs 12 lakhs of
capital subscribed by Government.

1985

Rs 13.63 crores of capital subscribed by Government.

1986

Rs 7 crores of capital subscribed by Government.

1989

Rs 20 crores of capital subscribed by Government.

1990

Rs 30 crores of capital subscribed by Government.

1991

Rs 25 crores of capital subscribed by Government.

1993

Rs 50 crores of capital subscribed by Government.

1994

Rs 130 crores of capital subscribed by Government.

1995

Rs 6.11 crores of capital subscribed by Government.

1996

Rs 136.29 crores of capital was set off against accumulated losses.

1997

Rs 6.00 crores Equity issued through prospectus to the public at a prem. of Rs 20 per share.

Dena Bank one of the premier public sector banks, has introduced Dena Smart Card, to
facilitate anywhere banking. Dena Bank is the first bank to launch this unique customer
friendly product. It is for the first time in India that a Bank is using Smart Card for storing
Account details.

The new card will be known as Dena Credit Card against Can Card, presently offered by the
bank.
Dena Bank proposes to start an industrial equipment leasing division during 1997-98,
according to Madhukar Umarji, General Manager of the Bank.

Dena Bank plans to become a depository participant with National Securities Depositories
Ltd (NSDL). The bank has also signed an agreement with NSDL for dematerialising its
scrips.

The bank proposes to open 15 branches in the country in the current year. Dena Bank has
computerized 250 branches till date out of 1,150 branches and has obtained World Bank
assistance to the tune of Rs.63 crores. The bank has set up 11 ATMs throughout the country
and 20 more are expected to be installed during the year.

The bank has proposed to increase its average staff productivity to Rs 80 lakh per employee
from Rs 70 lakh. A major leap up will be taken in the field of modernisation, as 50 more
branches will be fully computerised during the current year which will make the figure of
95 fully computerised branches.

Dena Bank has tied up with Visa Card International for providing independent credit card
facility to its customers. Consequently, the bank had decided to call off the credit card
agreement with Canara Bank.

Dena Bank is the second bank after Union Bank of India to break agreement with Canara
Bank in connection with credit card facility.

Dena Bank started ATMs at five of its branches that are hooked to Iwadhan, a shared
payment network system in the metropolis spearheaded by Indian Banks' Association.

1998

Dena bank, which is celebrating its diamond jubilee this year, has launched a deposit
mobilisation month from February 10 to March 10.

The rating for the long-term sub-oriented bonds of the Rs.100-crore Dena Bank has been
upgraded from LAA- to LAA, indicating high safety. The sub-oriented bonds of Rs.200 crore
has been assigned an LAA rating.

Dena Bank has adopted a new logo - a contemporary D anchored by the image of goddess
Laxmi. The D stands for a new attitude and a new dedication to service.
Dena Bank has launched a new term deposit - the `Freedom Deposit Scheme' - which
provides returns available on term deposits while assuring the investors with liquidity.

Dena Bank on 26.05.98 launched its outstation cheque collections service, Dena Zoom, and
inaugurated the Dena Institute of Information Technology as part of its Diamond Jubilee
celebrations.

Ramesh Mishra, had signed a memorandum of understanding with Visa International on

October 2 in Singapore. The bank has also signed an agreement with Equifax Venture Infotek
Ltd for providing the full range of back office support services.

Dena Bank proposes to issue its own independent credit cards and is holding talks with VISA
International for this purpose.
1999

Dena bank has launched `Dena Kisan Card' and has aligned with Visa International to issue
its own credit card. The card will be available to customers soon.

- Dena Bank has tied-up with Visa International to launch its Visa exclusive credit card.

- Dena Bank has tied up with United Bank of Switzerland (UBS) and
Commerzbank International of Luxembourg for gold trading, and
targets
business worth Rs 3,000 crore in the first year.

- Dena Bank has entered into an agreement with UBS AG Zurich and
Commerz Bank International SA Luxemberg for supply of gold on a
consignment basis to enable the bank to retail gold in India.

2000

- The Company has appointed Sharepro Services as its R&T agent in

place
of PCS Inds Ltd.

- Dena Bank to launch `debt card', market insurance products in a

bid
to boost its retail banking activity and increase business by over
Rs
23,000 crore by this fiscal.

- A G Pradhan has joined Dena Bank has chief vigilance officer.

- Dena Bank has launched a housing loan scheme -- `Dena Niwas Loan'
targetted at housing activity in greater Guwahati.
- Mr. S.C. Vohra, Currently General Manager, Punjab & Sind Bank, has
been appointed as a whole-time director.

2001

- The Bank has closed its issue of unsecured non-convertible

debentures
after raising the targeted Rs 75 crore.

- Dena Bank has entered into an alliance with HDFC Bank to optimise
customer service.

- The employees of Dena Bank observed a token strike on 28th March

in
protest against the closure of more than 100 branches of the bank
all
over the country.

2002

- Dena Bank has informed that the Central Govt. has appointed Mr.
Sudhir Kumudchandra Joshipura, as a Workmen Employee Director on the
Board of Directors of Dena Bank for a period of three years.

-A K Rai appointed as Director on the Board of Dena Bank.

2003

-Dena Bank issues 190 notices to defaulters comprising of Rs.316crs.

-Bank members have elected the directors of the shareholders which

includes
Shri Subash Chandra Wadhwa, Shri Atul Ashok Galande, Shri Chintaman
Mahadeo
Dixit and Shri Manu Chadha.

-Dena Bank introduces two new schemes to suit Indian residents and
non-resident
Indians.

-Dena Bank recovers 16.56cr NPA from 32 parties at a Lok Adalat.

-Central Government appoints Mr.B T R Reddy as Officer Employee

Director of Dena Bank.

-Approved the raising of equity share capital of the Bank by Rs.80.00

crores i.e. to increase the issued, subscribed and paid up capital of
the Bank from 20,68,23,200 shares at Rs.10/- per share i.e. total
Rs.2,06,82,32,000/- to 28,68,23,200 shares at Rs.10/- per share i.e.
Rs.2,86,82,32,000/- by way of Second Public Issue.

-A meeting of the Board of Directors of Dena Bank will be held on

November 27, 2003 to consider inter alia and if thought fit to
approve the prospectus to be filed with SEBI in connection with the
Banks proposed second public offer.

-Dena Bank has informed that the Chairman & Managing Director, Shri
A.G. Joshi has retired on December 31, 2003 on attaining the age of
superannuation i.e. December 31, 2003 after close of office hours and
ceased to be Director of the Bank w.e.f. January 1, 2004.

2004
-Dena Bank has informed that the Central Government has appointed
Shri P Vijaya Bhaskar, Chief General Manager, Reserve Bank of India,
Mumbai as a Director on the Board of Directors of Dena Bank with
effect from January 09, 2004 and until further orders, in place of
Smt. Grace Koshie, Chief General Manager-in-charge, Exchange Control
Department, Reserve Bank of India, Mumbai.

-Dr. Anil K. Khandelwal has taken over as the Chairman and Managing
Director of Dena Bank Ltd

-Dena Bank signs MoU with International Tractors Ltd for Financing
Tractors

-Dena Bank has been adjudged the best commercial bank in Gujarat
under Nabard's Self Help Group - Bank Linkage Programme

-Dena Bank CMD wins award for women empowerment initiatives

-Dena Bank has signed an MoU with Oriental Insurance Company to

distribute the latter's non-life policies

-Dena Bank on July07, 2004 signed a memorandum of understanding with

Eicher Tractor for tractor financing

-Dena Bank has signed a memorandum of understanding (MoU) with

Mahindra Gujarat Tractor Ltd (MGTL), a subsidiary of Mahindra &
Mahindra (M&M) Ltd, for extending financial assistance to farmers
buying tractors manufactured by the company

-Ties up with Escorts Tractors

-Dena Bank inks MoU with M&M for tractor loans

-Western Union joins hands with Dena Bank for inbound remittances

-Dena Bank forges alliance with IIT-C for rural ATM kiosks

2005

The second public issue opened on January 24, 2005 and closed on
January 29, 2005. The issue had got overwhelming response from
investors and substantially oversubscribed.

- Life Insurance Corporation of India signs 32nd bancassurance

agreement with Dena bank on April 29, 2005..

-Dena Bank appoints Shri M V Nair as Chairman & Managing Director

(CMD) for a period of five years

-Dena Bank inks agreement with Small Industries Development Bank of

India

-Dena Bank inks agreement with SIDBI

-Dena Bank rolls out 'no frills' banking

-Dena Bank join hands with LICMF.

2006

=Dena Bank and Union Bank of India have tied up with Small Farmers
Agri-business Consortium (SFAC) to facilitate growth of agri
business.
2007

-Dena Bank has appointed Mrs. Smita Vijayanand Pandit (Chief Manager
-IRC & Company Secretary) as Compliance Officer in place of Shri M.G.
Sanghvi with immediate effect, who will directly liaise with the
authorities such as Stock Exchanges, SEBI, ROC etc.

2010

- Dena Bank has nominated Shri Ignatius Marshal, Almeida, Manager

Dena Bank as Officer Employee Director on the Board of Dena Bank, for

a period of three years from the date of notification and /or upto

November 30, 2012 i.e. the date of superannuation or until he ceases

to be an officer of the Dena Bank, or until further orders whichever

is the earliest.

- Dena Bank has Shri A. K. Dutt, as a whole time director (designated

as Executive Director) of Dena Bank.

2011

- Smt. Nupur Mitra, as the Chairman & Managing Director of Dena

Bank.

- Dena Bank has informed BSE that the Bank has allotted 4,65,65,874

equity shares of Rs. 10/- each at a premium of Rs. 105.75 per share

to the Government of India in the name of President of India.

2012

- State run Dena Bank gained nearly 4 per cent on the Bombay Stock

Exchange (BSE) after it announced capital infusion of Rs 151.24 crore

through issue of preference shares to LIC.

 - Appointment of Shri Ashwani Kumar as Chairman & Managing Director,

Dena Bank.

2013

-Dena Bank have recommended a Dividend of 47% i.e. Rs. 4.70 per

equity share of Rs. 10/- each for the financial year 2012-2013.

2014

-Dena Bank have recommended a Final Dividend of 11% i.e. Rs. 1.10 per

equity share of Rs.

Dena Bank (the Bank) is a public sector bank. The Bank's segments include Treasury
Operations, Corporate/Wholesale Banking, Retail Banking and Other Banking Operations.
The Bank offers deposits and loans, and Internet banking, corporate banking and international
banking.
The loans include:
1. Dena Niwas Housing Finance Scheme,
2. Dena Trade Finance Scheme,
3. Dena Gold Loan Scheme,
4. Dena Vidya Laxmi Educational Loan Scheme,
5. Dena Senior Citizen Pensioners' Loan Scheme,
6. Dena Suvidha (Personal Loan) Scheme,
7. Dena Loan Against Property Scheme,
8. Dena Vehicle Loan Scheme,
9. Dena Consumer Durable Loan and
10. Dena Doctor Plus.
Its services include core banking solution, e-smart services, Dena Platinum Debit Card
(RuPay), RuPay PaySecure Services, Dena e-tax pay, mobile banking, Dena IndiaRemit,
Indirect Tax, Bancassurance, distribution of mutual funds, Demat Services, Dena Insta Pay,
Sukanya Samriddhi Account and National Pension System (NPS). The Bank operates
approximately 1,850 branches and branch network.
Mission of Dena Bank
“To provide its customers premier financial services of great value.
To provide its staff the positive work environment and opportunity for growth and
achievement.
To provide its shareholders superior financial returns.
To contribute towards the economic growth of the community”.

Vission of Dena Bank

“Dena Bank will emerge as the most preferred bank of customer choice in its area of
operations, by its reputation and performance.”
Review of Literature
NPA is a burning topic for the banking sector and many authors tried to study the
reasons of NPA, the problems created by NPA and the impact of NPA on the banking sector,
and moreover came to a solution or remedies of the growing problem of NPA. A number of
papers have been written and gone through, and this part of this paper is attempting to present
a review of all those are available in the same area of non-performing assets of the public
sector banks, private sector banks and other banks. This survey has conducted a study on the
existing papers, articles, journals, and reports provided by different authors, groups and
committees from time to time.

Dutta. A (2014): This paper studied the growth of NPA in the public and private sector banks
in India, and analysed sector wise non-performing assets of the commercial banks. For the
purpose of the study data has been collected from secondary sources such as report on Trend
and Progress of Banking in India, RBI, Report on Currency and Finance, RBI Economic
Surveys of India.

Das, S. (2010): In this paper the author has tried to analyse the parameters which are actually
the reasons of NPAs, and those are, market failure, wilful defaults, poor follow-up and
supervision, non-cooperation from banks, poor Legal framework, lack of entrepreneurial
skills, and diversion of funds

Ahmad, Z., Jegadeeshwaran, M. (2013): The current paper is written on the NPA, and
causes for NPA. Secondary data was collected for a period of five years and analysed by
mean, CAGR, ANOVA and ranking banks. The banks were ranked as per their performance
in managing the NPA‟s. The efficiency in managing the NPA by the nationalised banks was
tested.

Ranjan, R., Dhal, S.C. (2013): This paper explores an empirical approach to the analysis of
the Indian commercial banks' nonperforming loans by regression analysis. The empirical
analysis evaluates as to how the NPLs are influenced by three major sets of economic and
financial factors, i.e., terms of credit, bank size induced risk preferences and macroeconomic
shocks.
Reddy, P.K. (2002): This paper deals with the experiences of other Asian countries in
handling of NPAs. It further looks into the effect of the reforms on the level of NPAs and
suggests mechanisms to handle the problem by drawing on experiences from other countries.

Joseph, A. L. (2014): This paper basically deals with the trends of NPA in banking industry,
the internal, external and other factors that mainly contribute to NPA rising in the banking
industry and also provides some suggestions for overcoming the burden of NPA.

Kamra, S. D. (2013): This paper analyses the position of NPAs in the selected nationalised
banks namely State Bank of India (SBI), Punjab National Bank (PNB) and Central Bank of
India (CBI). It also focuses on the policies pursued by the banks to manage the NPAs and
suggests a strategy for the speedy recovery of NPAs.

Patidar, S.,Kataria, A. (2012): The study analyzed the percentage share of NPA as
components of priority sector lending, the comparative study was conducted between SBI and
Associates, Old Private Banks and New Private Banks and Nationalized Banks of the
benchmark category, to find out the significant difference of the NPA and also find out the
significant impact of Priority Sector Lending on the Total NPA of Banks using statistical tools
like regression analysis and ratio analysis.
Arora, N., Ostwal, N. (2014): The present paper analyses the classification and comparison
of loan assets of public and private sector banks. The study concluded that NPAs are still a
threat for the banks and financial institutions and public sector banks have higher level of
NPAs in comparison to Private sector banks.

Patnaik, B.C.M., Satpathy,I. (2012): The present paper made an attempt to analyse the
causes of NPAs in working capital loans of Urban Co-operative banks. For the study purpose
borrowers were surveyed through questionnaires, causes were analyzed and suggestions made
to overcome the problem.

Patnaik, B.C.M., Satpathy, I. (2011): The present paper tries to analyze the quantitative
trend and pattern in growth of NPA with reference to the education loan scheme, in Odisha.
An effort was made to find the cause, by questionnaire survey of the defaulters, who are
students of different colleges, suggestions to overcome this problem was also given by the
author.

Bhatia, B.S., Waraich, S., Gautam, V. (2013): This study was made on District Central
Cooperative Bank of Punjab, the study tried to analyse the impact of some new product lines
on non performing advances in cooperative banks and trends in NPA against loan schemes.
Lastly a comparative analysis was made between bank wise and component wise to find out
the lacunas and suggest measures for improvement in managing NPA.

Rajput, N., Gupta, M., Chauhan, A.K. (2012): This paper provides an empirical approach
to the analysis of profitability indicators on NPA, it also discusses the factors which
contribute towards NPA, and also analyses the solution for the same. All empirical findings
were done by using statistical tools like correlation, regression and data representation
techniques and DEA.

Ibrahim, M.S., Thangavelu, R. (2014): In this paper, the author has analyzed the concept of
NPAs, components of loan assets in public sector, private sector and other foreign banks, by
an exploratory and diagnostic approach with the help of secondary data.

Srinivas, K.T. (2013): The present paper undertakes to study the reasons for loans and
advances becoming NPA in the Indian Commercial Banking Sector and give a suitable
solution to overcome the mentioned problem. Rai, K. (2012): The paper made an effort to
evaluate the operational performance of the selected commercial banks, and the NPA Trends
and issues, also the measures taken for managing the NPAs like reformulation of banks‟
credit appraisal techniques, establishment of monitoring department, etc.

Satpal (2014): An attempt has been made in this paper to find out the actual definition of
NPA and the factors contributing to the formation NPAs, reasons for high NPAs and their
impact on Indian banking operations. Rajeev, M., Mahesh, H.P., (2010): This exploratory
paper examines the Indian trends of NPAs from various dimensions and explains how
recognition of the problem continuous monitoring, can reduce it to a greater extent. The paper
also discusses the functions of the joint liability groups or self-help groups in enhancing the
loan recovery rate.

Yadav, S. (2014): With the help of secondary data, the author in the present paper has tried to
show the recent trends and its preventive measures to control NPAs in Indian banking
industry.
Rakshit, D., Chakrabarti, S. (2012): The paper deals with understanding the extent of NPAs
in cooperative bank and the major causes behind an account becoming non-performing in
cooperative banks

Kumar, M.,Singh, G. (2012): The paper focuses on the most significant factors, which
contribute towards the non-performing assets problem from the view point of the top bankers
of public sector banks and, some foreign banks in India and the measures required for
managing the NPAs

Gupta, J., Jain, S. (2012): The present study deals with performance and the lending
practices of some successful cooperative banks of Delhi, whose customers have taken more
than one type of loans from the bank. Pradhan, T.K. (2012): The present study is on Odisha,
and depends on the mismanagement or diversion of fund, which are one of the main causes of
NPA. The study is based on primary data which has been analyzed by percentage method.
The data was collected from 50 bank officials through a structured questionnaire.
Rajput, N.,Arora, A.P., Kaur, B. (2012): This study focuses on management of non-
performing assets of the public sector banks under stringent asset classification norms. The
study tried to trace the movement of the nonperforming assets present in Indian public sector
banks and also analysed the performance of the banks in managing the NPA.

Rajaraman, I.,Vasishtha, G. (2001): The paper performs a panel regression on the

definitional uniform secondary data, on NPA available for a five-year period ending in 1999-
2000. The paper studies 27 public sector banks, and investigates variations within a class that
is homogenous on the ownership dimension and operational efficiency.

Gupta, B. (2012): In this paper, study has been made on SBI and Associates, and public
sector banks, an effort has been made to understand the concept of NPAs, its magnitude and
major causes for increasing NPA and also evaluate the operational performance in managing
NPA.

Rajput, N.,Arora, A.P., Kaur, B. (2011): This study attempts to trace the movement of the
NPAs presence in public sector banks of India, by analyzing the financial performance in
managing NPA.

Ganesan, D., Santhanakrishnan, R. (2013): In this paper, an effort has been made to
evaluate the non-performance assets of the SBI since 2002.

Stuti, Bansal, S. (2013): In this paper, an effort has been made to evaluate the operational
performance of the Public Sector Banks and Private sector bank in India with the help of
secondary data between 2003-04 and 2007-09, on NPAs Trends and issues. This paper
analyzes how efficiently Public and Private sector banks have been managing NPA.

Pradhan, T.K. (2012): The present study, with the help of secondary data of six years, tried
to analyse how reform measures helped in minimising the NPA in public sector banks, the
data has been analyzed by using percentage method.

Selvarajana, B.,Vadivalagan, G. (2013): The present study has been designed to illustrate
the necessity and the nature of the non-performing assets in Indian Bank, Tamil Nadu. The
study was done on the priority sector loan.
Tripathi, L. K., Parashar, A., Mishra, S. (2014): The present study, with the help of
multiple regression model attempts to investigate the impact of priority sector advances,
unsecured advances and advances made to sensitive sectors by banks like SBI group and
other nationalised banks on Gross NPAs of banks.

Jajashree, Kotnal, R., Ahmed, I.,Naikwadi, M. (n.d.): This study deals with understanding
the concept of NPAs, its magnitude and major causes for an account becoming non-
performing, the study was made on Corporation Bank, Bagalakot and BDCC Bank,
Bagalakot.

Kaur, H., Saddy, N.K. (2011): An attempt was made in the paper to know about NPA, the
factors responsible for the contribution towards NPAs, the magnitude and reasons for high
NPAs and their impact on Indian banking operations.

Satpathy, I, Patnaik, B.C.M. (2010): The present paper attempted to examine the causes of
NPAs in home loans of commercial banks. For this borrowers of the loans were surveyed
through questionnaires made for the purpose, and ultimately suggestions given to overcome
the problem.

Chaudhary, K., Sharma, M. (2011): This paper has made an attempt to analyze how
efficiently Public and Private sector banks have been managing NPA. A statistical tool for
projection of trend was used for analysis.
What is Non-Performing Assets?
An asset, including a leased asset, becomes non-performing when it ceases to generate
income for the bank. It is also known as non- productive assets (NPAS), non-performing
loans and constitute integral part of Bank‟s operations. It means NPA an asset or account of
borrower, which has been classified by a bank or financial institution as sub-standard,
doubtful or loss asset, in accordance with the directions or guidelines relating to asset
classification issued by RBI. An amount due under any credit facility is treated as "past due"
when it has not been paid within 30 days from the due date. Due to the improvement in the
payment and settlement systems, recovery climate, up-gradation of technology in the banking
system, etc., it was decided to dispense with 'past due' concept, with effect from March 31,
2001. Accordingly, as from that date, a Non performing asset (NPA) shall be an advance
where

 Interest and /or installment of principal remain overdue for a period of more than 180
days in respect of a Term Loan,

 The account remains 'out of order' for a period of more than 180 days, in respect of an
overdraft/ cash Credit(OD/CC)

 The bill remains overdue for a period of more than 180 days in the case of bills
purchased and discounted,

 Interest and/ or installment of principal remains overdue for two harvest seasons but for
a period not exceeding two half years in the case of an advance granted for agricultural
purpose, and

 Any amount to be received remains overdue for a period of more than 180 days in
respect of other accounts.
With a view to moving towards international best practices and to ensure greater
transparency, it has been decided to adopt the '90 days overdue' norm for identification of
NPAs, form the year ending March 31, 2004. Accordingly, with effect from March 31, 2004,
a non-performing asset (NPA) shell be a loan or an advance where;

 Interest and /or installment of principal remain overdue for a period of more than 90 days
in respect of a Term Loan,

 The account remains 'out of order for a period of more than 90 days, in respect of an
overdraft/ cash Credit(OD/CC), (as according to guidelines “an account should be treated
as 'out of order' if the outstanding balance remains continuously in excess of the
sanctioned limit/ drawing power. In case where the outstanding balance in the principal
operating account is less than the sanctioned limit/ drawing power, but there are no
credits continuously for six months as on the date of balance sheet or credits are not
enough to cover the interest debited during the same period, these account should be
treated as 'out of order').

 The bill remains overdue for a period of more than 90 days in the case of bills purchased
and discounted, (as according to guidelines “any amount due to the bank under any credit
facility is overdue if it is not paid on that date fixed by the bank”).
 Interest and/ or installment of principal remains overdue for two harvest seasons but for a
period not exceeding two half years in the case of an advance granted for agricultural
purpose, and

 Any amount to be received remains overdue for a period of more than 90 days in respect
of other accounts.
Income Recognition and Asset Classification:
In line with the international practices and as per the recommendations made by the
committee on the financial system the RBI has introduced in a phased manner, prudential
norms for income recognition, asset classification and provisioning for the advances portfolio
of the banks so as to move towards greater consistency and transparency in the published
accounts and to reflect a true picture of financial position of banks on the basis of their
booking the income on actual basis than the accrual basis add also to classify assets according
to the level of risk attached to them.

Income Recognition:
The policy for income recognition is based on the record of recovery rather than on any
subjective considerations. In the line with international best practices, income from NPA is
not to be recognized on accrual basis but is booked on income policy only when it is actually
received. Likewise, the classification of assets of banks has to be done on the basis of
objective criteria which would ensure a uniform and consistent application of the norms.
Also, the provisioning should be made on the basis of the classification of assets based on the
period for which the asset has remained non-performing and the availability of security and
the realizable value thereof. Therefore the banks should not charge and take to income
account interest on any NPA component of finance income on the leased assets, (as according
to guidelines “Interest on advances against term deposits, NSCs, IVPs, KVPs and life policies
may be taken to income account on the due date, provided adequate margin is available in the
accounts. Fees and commissions earned by the banks as a result of renegotiation or
rescheduling of outstanding debts should be recognized on the accrual basis over the period
of time covered by the renegotiated or rescheduled extension of credit. If government
guaranteed advances become NPAs, the interest on such advances should not be taken to
income account unless the interest has been realized”).

Reversal of Income:
If advances, generally including bills purchased and discounted, due to any circumstances
become an NPA as at close of any year, the interest accrued and credited to income account in
the corresponding previous year, should be reversed or provided for. This is applicable to
government guaranteed accounts also. Apart from this, uncollected fees, commissions and
other income that due to any circumstances have accrued in NPAs during past periods should
be reversed or provided for.
Leased Assets:
According to 'Guidance Note on Accounting for Leases' issued by the (ICAI), the net lease
rentals or the unrealized finance charge on the leased assets which are accrued and credited to
income account before the assets become non performing, should be reversed or provided for
in the current accounting period.

Appropriation of Recovery in NPAs:

Interest realized on NPAs may be taken to income account provided the credits in the
accounts towards interest are not out of fresh/additional credit facilities sanctioned to the
borrower. But in the absence of a clear agreement banks have a right to adopt an accounting
principle and exercise the appropriation of recoveries in a uniform and consistent manner.
ASSET CLASSIFICATION AND NPA NORMS

Classification of Assets:
While new private banks are careful about their asset quality and consequently have low non-
performing assets (NPAs), public sector banks have large NPAs due to wrong lending policies
followed earlier and also due to government regulations that require them to lend to sectors
where potential of default is high. Allaying the fears that bulk of the Non-Performing Assets
(NPA) was from priority sector, NPA from priority sector constituted was lower at 46 per cent
than that of the corporate sector at 48 per cent. Loans and advances account for around 40 per
cent of the assets of SCBs. However, delay/default in payment of interest and/or repayment of
principal has rendered a significant proportion of the loan assets non-performing. As per
RBI‟s prudential norms, a Non-Performing Asset (NPA) is a credit facility in respect of
which interest/installment has remained unpaid for more than two quarters after it has become
past due. “Past due” denotes grace period of one month after it has become due for payment
by the borrower.

Regulations for asset classification

Assets are classified into four classes - Standard, Sub-standard, Doubtful, and Loss assets.
NPA consist of assets under three categories: sub-standard, doubtful and loss. RBI for these
classes of assets should evolve clear, uniform, and consistent definitions. The banks should
classify their assets based on weaknesses and dependency on collateral securities into four
categories:
i. Standard Assets:
It carries not more than the normal risk attached to the business and is not an NPA. Standard
assets are the ones in which the bank is receiving interest as well as the principal amount of
the loan regularly from the customer. Here it is also very important that in this case the arrears
of interest and the principal amount of loan do not exceed 90 days at the end of financial year.
If asset fails to be in category of standard asset that is amount due more than 90 days, then it
is NPA and NPAs are further need to classify in sub categories.
ii. Sub-standard Asset:
A sub-standard asset is one which has remained NPA for a period less than or equal to 12
months from 31.3.2005. In such case the current net worth of the borrower/guarantor or the
current market value of the security charged is not enough to ensure recovery of the dues to
the banks in full. In other words, such an asset will have well defined credit weaknesses that
jeopardize the liquidation of the debt and are characterized by the distinct possibility that the
banks will sustain some loss, if deficiencies are not corrected.
iii. Doubtful Assets:
With effect from 31.3.2005, an asset is to be classified as doubtful, if it has remained NPA for
a period exceeding 12 months. A loan classified as doubtful has all the weaknesses inherent in
assets that were classified as sub-standard, with the added characteristics that the weaknesses
make collection or liquidation in full, - on the basis of currently known facts, conditions and
values- highly questionable and improbable. Under this category there are three stages: D-I
Doubtful up to one-year D-II Doubtful for further two years D-III Doubtful beyond three
years.

iv. Loss Assets:

An asset identified by the bank or internal/ external auditors or RBI inspection as loss asset,
but the amount has not yet been written off wholly or partly. The banking industry has
significant market inefficiencies caused by the large amounts of Non-Performing Assets
(NPA) in bank portfolios, accumulated over several years. Discussions on non-performing
assets have been going on for several years now. One of the earliest writings on NPA defined
them as "assets which cannot be recycled or disposed off immediately, and which do not yield
returns to the bank, examples of which are: Overdue and stagnant accounts, suit filed
accounts, suspense accounts and miscellaneous assets, cash and bank balances with other
banks, and amounts locked up in frauds".
Guidelines for the classification of assets
 Classification of assets into above categories should be done taking into account the
degree of well defined credit weaknesses and the extent of dependencies on collateral
security for the realization of dues.
 Banks should establish appropriate internal systems to eliminate the tendency to delay
or postpone the identification of NPAs especially in respect of high value of accounts.
Account with temporary Deficiencies:
The classification of an asset as NPA should be based on the record of recovery. Bank should
not classify an advance account as NPA merely due to the existence of some deficiencies,
which are temporary in nature as such as non – availability of adequate drawing power based
on latest stock.
Asset classification to be borrower – wise and not facility-wise:
It is difficult to envisage a situation when only one facility to a borrower becomes a problem
credit and not others. Therefore, all the facilities granted by a bank to a borrower will have to
be treated as NPA and not the particular facility or a part thereof, which has become irregular.
Advances under consortium arrangements:
Asset classified of accounts under consortium should be based on the record of recovery of
the individual member banks and other aspects having bearing on the recoverability of the
advances. Accounts where there is erosion in the value of security can be reckoned as
significant when the realizable value of the security is less than 50 percent of the value
assessed by the bank or accepted by RBI at the time of last inspection, as the case may be.
Such NPAs may be straightway classified under doubtful category and provisioning should be
made as applicable to doubtful assets.
Agricultural Advances
 In respect of advances granted for agricultural purpose where interest and / or installment
of principal remains unpaid after it has become past due for two harvest seasons but for a
period not exceeding two half years, such an advance should be treated as NPA.
 Where the natural calamities impair the repaying capacity of agricultural borrowers,
banks may decide on their own as a relief measure-conversion of the short –term
production loan into a term or re-schedulement of the repayment period.
 In such cases of conversation or re-schedulement, the term loan as well as fresh short-
term loan may be treated as current dues and need not be classified as NPA.
Restructuring /rescheduling of loans:
A standard asset where the terms of the loan arrangement regarding interest and principal
have been renegotiated or rescheduled after the commencement of production should be as
sub-standard and should remain in such category for at least one year of satisfactory
performance under the renegotiated or restructured terms. In case of substandard and doubtful
assets also, rescheduling does not entitle a bank to upgrade the quality of advances
automatically unless there is satisfactory performance under the rescheduled –renegotiated
terms.
Exceptions:
As trading involves only buying and selling of commodities and the problems associated with
manufacturing units such as bottleneck in commercial production, time and cost escalation
etc. are not applicable to them.
Table 1.1: Types of loans and its characters

Nature of Facility Parameters

Interest and/or instalment of principal remain

Term Loan
overdue beyond 90 days

Overdraft/Cash Credit Remains out of order as indicated above

Bill Purchased/discounted Remains overdue beyond 90 days

Instalment of principal or interest thereon

Crop Loans (short duration crops)
remains overdue for 2 crop seasons

Instalment of principal or interest thereon

Crop Loans (Long duration crops)
remains overdue for 1 crop season

Amount of liquidity facility remains

Securitization transactions
outstanding beyond 90 days

Overdue receivables representing positive

Derivative transactions
mark-to-market value of a derivative

contract which remains unpaid beyond 90

days from specified due date for

Payment

Source: http://www.iibf.org.in/doc uments/IRAC.pdf

Table 1.2 Net NPA Gross NPA and stress assets till March 2016

NPA Net NPA% Gross NPA% Stressed assets%

Mar-13 3.4 9.2

Sep-13 2.3 4.2 10.2

Mar-14 2.2 4.1 10

Sep-14 2.5 4.5 10.7

Mar-15 2.5 4.6 11.1

Sep-15 2.8 5.6 11.3

Mar-16 4.6 7.6 11.5

Mar-17 8.5 9.3

The above table depict the % of Net, Gross NPA and Stress assets during the period 2013 to
2016 the % increase continuously. It forecast that in 2017 it will reach at 8.5and 9.3 and it
will be critical for banking system.
Table No. 1.3 Indian Banks and their NPA’s

Bank NPA

PNB 5300 CR

UCO 1497 CR

Indian Overseas Bank 1425 CR

Central Bank of India 837 CR

Dena Bank 663 CR

IDBI 1609 CR

Others 8883 CR
Why NPA have become an issue for banks and financial institutions in India?

To start with, performance in terms of profitability is a benchmark for any business

enterprise including the banking industry. However, increasing NPA have a direct impact on
banks profitability as legally banks are not allowed to book income on such accounts and at
the same time banks are forced to make provision on such assets as per the Reserve Bank of
India (RBI) guidelines.
Also, with increasing deposits made by the public in the banking system, the
banking industry cannot afford defaults by borrowers since NPA affects the repayment
capacity of banks. Further, Reserve Bank of India (RBI) successfully creates excess liquidity
in the system through various rate cuts and banks fail to utilize this benefit to its advantage
due to the fear of burgeoning non-performing assets.
Internal Factor: Diversion of funds for
Expansion/diversification /modernization
Taking up new project
Helping /promoting associate concerns time/cost overrun during the project implementation
stage Business Failure
Inefficiency in management
Slackness in credit management and monitoring
Inappropriate Technology/technical problem
Lack of coordination among lenders
External Factor:
Recession
Input/power storage
Price escalation
Exchange rate fluctuation
Accidents and natural calamities, etc.
Changes in government policies in excise/ import duties, pollution control orders, etc.
Some other factors also affected to NPA which are mention below in detail:
Liberalization of economy/removal of restriction/reduction of tariffs:
A large number of NPA borrowers were unable to compete in a competitive market in which
lower prices and greater choices were available to consumers. Further, borrowers operating in
specific industries have suffered due to political, fiscal and social compulsions, compounding
pressures from liberalization.
Lax monitoring of credit and failure to recognize Early Warnings Signals:
It has been stated that approval of loan proposal is generally thorough and each proposal
passes through many levels before approval is granted. However, the monitoring of
sometimes complex credit files has not received the attention it needed which meant that
early warning signals were not recognized and standard assets slipped to NPA category
without banks being able to take proactive measures to prevent this. partly due to this reason,
adverse trends in borrower’s performance were not noted and the position further deteriorated
before action was taken.
Over optimistic promoters:
Promoters were often optimistic in setting up large projects and in some cases were not fully
above board in their intentions. screening procedures did not always highlight these issues.
often projects were set up with the expectation that part of the funding would be arranged
from the capital markets which were booming at the time of the project appraisal. When the
capital markets subsequently crashed, the requisite funds could never be raised, promoter
often lost interest and lenders were left stranded with incomplete/unviable projects.
Directed lending:
Loans to some segment were dictated by Governments policies than commercial imperatives.
Highly Leveraged borrowers:
Some borrowers were undercapitalized and over burdened with debt to absorb the changing
economic situation in the country. Operating within a protected marked resulted economic
situation in the country. Operating within a protected market resulted in low appreciation of
commercial/market risk.
Funding mismatch:
There are said to be many cases where loans granted for short terms were used to fund long
term transactions.
High Cost of Funds:
Interest rates as high as 20% were not uncommon. Coupled with high leveraging and falling
Denmark, borrowers could not continue to service high cost debt.
Willful Defaulters:
There are a number of borrowers who have strategically defaulted on their debt service
obligation realizing that the legal resource available to creditors is slow in achieving results.
Credit growth and NPA life cycle

NPAs are largely a fallout of banks activities with regard to advance, both at the management
and implementation levels. The credit appraisal system, monitoring of end -usage of funds
and recovery procedures.

 It also depends on the overall economic environment, the business cycle and the legal
environment for recovery of defaulted loan since the overall environment is more or
less same for all banks, Non-performing loans of individual banks are mainly a result
of management controls and systems put in place by them.

 A bank with an efficient credit appraisal and loan recovery system will grow stronger
over the years. Such banks have good management controls and also inherent
strengths in terms of a highly motivated staff, good checks and balance, which are
further enhance by a regulatory and supervisory system.

 As the growth in advances is largely determine by the economic and business

environment, such banks will be able to push their credit portfolio aggressively,
especially when economy is booming. Also, as such banks have a diversified credit
portfolio, it would act as a cushion during economic downturns. This will result in
lower NPAs, allowing them to grow stronger and even adopt a more aggressive
growth strategy and them by, withstand marginally higher incidences of default.

 However, a bank without inherent strength will not be able to push their credit
portfolio the way the want to. They are characterized by poor management control,
inadequate credit appraisal and even low levels of motivation among the staff. When
such banks push their advances portfolio, chances of their assets quality deteriorating
are higher. since assets quality will be visible only after credit disbursal, which itself
depends on the regulatory definition of NPAs, any deteriorating will be reflected after
a time lag. Thus, bank without inherent strength will have higher NPA levels,
especially when the economy has seen above average credit growth.
NPA - Impact
The problem of NPAs in the Indian banking system is one of the foremost and the most
formidable problems that had impact the entire banking system. Higher NPA ratio trembles
the confidence of investors, depositors, lenders etc. It also causes poor recycling of funds,
which in turn will have deleterious effect on the deployment of credit. The non-recovery of
loans effects not only further availability of credit but also financial soundness of the banks.
Profitability:
NPAs put detrimental impact on the profitability as banks stop to earn income on one hand
and attract higher provisioning compared to standard assets on the other hand. On an average,
banks are providing around 25% to 30% additional provision on incremental NPAs which has
direct bearing on the profitability of the banks.
Asset (Credit) contraction:
The increased NPAs put pressure on recycling of funds and reduces the ability of banks for
lending more and thus results in lesser interest income. It contracts the money stock which
may lead to economic slowdown.
Liability Management:
In the light of high NPAs, Banks tend to lower the interest rates on deposits on one hand and
likely to levy higher interest rates on advances to sustain NIM. This may become hurdle in
smooth financial intermediation process and hampers banks’business as well as economic
growth.
Capital Adequacy:
As per Basel norms, banks are required to maintain adequate capital on risk-weighted assets
on an ongoing basis. Every increase in NPA level adds to risk weighted assets which warrant
the banks to shore up their capital base further. Capital has a price tagranging from 12% to
18% since it is a scarce resource.
Shareholders’ confidence:
Normally, shareholders are interested to enhance value of their investments through higher
dividends and market capitalization which is possible only when the bank posts significant
profits through improved business. The increased NPA level is likely to have adverse impact
on the bank business as well as profitability thereby theshareholders do not receive a market
return on their capital and sometimes it may erode their value of investments. As per extant
guidelines, banks whose Net NPA level is 5% & above are required to take prior permission
from RBI to declare dividend and also stipulate cap on dividend payout.
Public confidence:
Credibility of banking system is also affected greatly due to higher level NPAs because it
shakes the confidence of general public in the soundness of the banking system. The
increased NPAs may pose liquidity issues which is likely to lead run on bank by depositors.
Thus, the increased incidence of NPAs not only affects the performance of the banks but also
affect the economy as a whole. In a nutshell, the high incidence of NPA has cascading impact
on all important financial ratios of the banks viz., Net Interest Margin, Return on Assets,
Profitability, Dividend Payout, Provision coverage ratio, Credit contraction etc., which may
likely to erode the value of all stakeholders including Shareholders, Depositors, Borrowers,
Employees and public at large.

Findings
Because of mismanagement in bank there is a positive relation between Total Advances, Net
Profits and NPA of bank which is not good. Positive relation between NPA & profits are due
to wrong choice of clients by Banks. There is an adverse effect on the Liquidity of Bank.
Bank is unable to give loans to the new customers due to lack of funds which arises due to
NPA As per the government, the main reasons for rise in NPAs are sluggishness in the
domestic growth in the recent past, slow recovery in the global economy and continuing
uncertainty in global markets leading to lower exports of various products such as textiles and
leather.

Suggestion
Advances provided by banks need to be done pre-sanctioning evaluation and post
disbursement control so that NPA can decrease. Good management needed on the side of
banks to decrease the level of NPA. Proper selection of borrowers & follow ups required to
get timely payment. Non-performing assets are a drain to the banks. The banks in India are
adopting various strategies to reduce the non-performing assets in their banks and they are
also adopting various methodologies by which further addition to NPA portfolio is minimized
In the real sense, in case there is a recovery in principal and installments due in respect of the
loans granted to the banks are received 100%, the question of non-performing assets do not
arise. However, there is no such ideal bank where the NPA is nil. Except banks which were
originated recently, all banks are prone to have some portion of their loans and advances as
non performing advances The following are some strategies by which banks are trying to
curtail non-performing assets to a great extent:
Recovery camps:
Bank personnel jointly approach the defaulting borrowers for repayment at a place and time
convenient to both the parties. These are more suited to small loans. Normally the borrowers
who had availed small loans will be more in number in rural and semi urban areas rather than
urban and metro centers. As such, the banks instead search areas rather than urban and metro
centers. As such, the banks instead of conducting the recovery camps at their branches, they
usually conduct such recovery camps in centres like panchayat board offices, court buildings,
government department buildings etc such recovery camps so that the borrowers find it
convenient to attend the recovery camps. Under certain circumstances, the manager in charge
of the bank branches along with some branch officials go to each visit each house of the
borrowers and recover the installments due in respect of loans availed by them. This type of
recovery camp will be successful in case an advance notice is served on the borrowers
mentioning the date of recovery camps
Preference of claims:
Banks should expeditiously and properly claim indemnity from organizations like Deposit
Insurance and Credit Guarantee Corporation called DICGC, Export Credit Guarantee
Corporation called ECGC, Credit Guarantee Fund Trust for small scale industries, Insurance
Companies etc and invoke Government/other personal guarantees to recover loan dues and
reduce non-performing assets.

Compromise proposals:
Compromise routes are adopted by banks, where borrowers experience certain genuine
difficulties and where normal recovery is not possible. It involves certain sacrifices on the
part of the banks on the principle of “one bird at hand is worth two in the bush”. Such
proposals can be taken up considering the history of the borrowed account, security available,
net worth of the borrower/guarantor, time value of offer made etc.

Technical write off:

Normally banks decide writing off small loans which have become bad and the recovery is
not at all possible in those accounts under any circumstances on account of the facts that the
borrower might have been expired; he has no means to repay the loan at any cost and there
may be huge losses in respect of the properties etc. This is for the sole purpose of servicing
such non performing accounts.

One-time settlement scheme:

To reduce the absolute amount of non-performing assets, Government of India along with
Reserve Bank of India are announcing one time settlement schemes periodically for the past
few years. When the borrowers are alive and when the borrowers are farmers, small
entrepreneurs etc and they find it very difficult to pay their dues for various reasons like bad
health and fall in their business ventures, however, they have the inclination to repay their
debts to the banks,this type of practice is very much helpful to the borrowers and the lending
institutions. Surely the banks are in a position to lose certain portion of their loan amount
when they are conducting one-time portion of their loan amount when they are conducting
one-time settlement schemes.

Suit filing:
Filing of suit is taken up as a last resort when all other remedies to recover non-performing
assets fail. Banks can initiate recovery proceedings with or without intervention of the courts
of law. To Expedite the process; banks should be alert and proactive in all stages of the
proceedings. i.e. preparation of plaint, service of summons, written statements, trial of the
suit, obtaining decree copy, praying for interim relief, execution of decrees, attachment of the
property, arrest of the defendants, if needed etc.
Debt recovery tribunals:
The debt recovery tribunal act was passed by Indian Parliament in 1993 with the objective of
facilitating the banks and financial institutions for speedy recovery of dues in cases where the
loan amount is Rs. 10 lakhs and above. The time limit envisaged under the act is not being
adhered to in disposing off the suits because of inadequate infrastructure and shortage of
recovery personnel with the DRTs. Nonetheless, the DRT act and subsequent amendment in
2000 have provided a great improvement over the normal legal forum.

Lok adaltes:
It is a legal forum for expeditious settlement of loan dues on consensus arrived between the
bank and the borrowers mediated by the Lok Adalat.

Securitization Act:
The securitization and financial assets and enforcement of security interest – SARFAESI act
2002 aims to empower banks as secured creditors to take possession, manage and sell the
securities without the intervention of court/tribunal. It also aims at Asset Reconstruction by
securitization or reconstruction company. However, loan with balance below Rs. 1 lakh
unsecured loans and loans against collateral of agricultural land are exempted from the
purview of this act.
Gap in Research

From the above literature review it was found that no study has been conducted from
the period 2008 to 2013 in context of the objective stated earlier in the study. So the present
scenario of Net NPA of banking sector was not depicted.

Statement of the Problem:

 The first and for most step happens to be that of selecting and properly defined the
research problem.

 Research problems refers to some difficulty which a researcher experience in the

context of either a theoretical or practical situation and wants to obtain a solution for
the same.

 The research problem is one which requires a research of to find out the best solution
for the given problem that is to find out by which goals of action the objective can be
attained optimally in the context of a given environment.

 As part of the research study we have selected Public sector bank of India. The title of
the problem is “NPA Impact On Profitability of Public Sector

Need of the Study

The banking sector of India consists of public sector banks, private sector banks, co-
operative banks and foreign banks. But among these four types public sector banks still
dominate the banking industry, with approximate 82% of the market share in total deposit and
advances of the industry. The public sector banks play a crucial role in the Indian economy,
by contributing directly to the GDP, and mobilizing savings and channelizing investments.
But after managing every challenge successfully and by giving standard services to the
customers, NPA becomes the biggest of all challenges and managing NPA is one of the
hardest tasks for these banks, as the increasing NPA have adverse impact upon the progress of
the Indian economy and the Indian financial system. On the other hand, NPA is efficiently
managed by the private sector banks, and it is controlled.

The current paper tries to draw a view on the status of the NPA in different public
sector banks, including State Bank of India and its Associates, and other public sector banks.
Objective of the study:
The Non-Performing Assets (NPAs) problem is one of the foremost and the most formidable
problems that have shaken the entire banking industry in India like an earthquake. Like a
canker worm, it has been eating the banking system from within, since long. It has grown like
a cancer and has infected every limb of the banking system. At macro level, NPAs have
choked off the supply line of credit to the potential borrowers, thereby having a deleterious
effect on capital formation and arresting the economic activity in the country. At the micro
level, the unsustainable level of NPAs has eroded the profitability of banks through reduced
interest income and provisioning requirements, besides restricting the recycling of funds
leading to serious asset liability mismatches. Unfortunately, the high level of NPAs of banks
is adversely affecting the profitability, liquidity and solvency position of the banking sector.

 To know Why NPAs have become an issue for banks and financial institutions in India.
To understand what is Non-Performing Assets and what are the underlying reasons for
the emergence of the NPAs.
To understand the criteria for identification of non-performing assets in banks.
To understand what are the factors for rise of NPAs.
To know what steps are being taken by the Indian banking sector to reduce the NPAs.
To study the NPA management policy of Bank of India.
To review Dena Bank’s performance in non-performing assets for the time period of
2015-2016.
METHODOLOGY
The research design used for carrying out this project is descriptive research because the
report deals with statistical data and the main cause of the report is to describe the factors
affecting the problem mentioned.

Sources of data:
There are two types of data - Primary data or raw data and secondary data or second hand
data. The data which is collected on source which has not been subjected to processing or any
other manipulation is primary data whereas secondary data is the data collected by someone
other than the user through common sources like censuses, surveys, organizational records
and data collected through qualitative methodologies or qualitative research. The data
collected is mainly secondary in nature. The sources of data for this Report include the
literature published by the Bank of India and also the Reserve Bank of India. Also the various
magazines dealing with the current banking scenario and research paper have also been a
source of information. The booklet on Recovery Policy published by the Asset Recovery
Department of Bank of India has been of great help.

Sampling Plan:
The target population of study included the Dena Bank in particular and all other public
sector banks and private sector banks in general.

Limitations of the study:

 The study on management of non-performing assets is limited to the Dena Bank.

 The basis for identifying non-performing assets is the one that has been mentioned in
the report but some minor changes may have been carried out through the Reserve
Bank of India circulars, which are received on a daily basis by the bank.

 Since non-performing assets are a critical issue, bank officials are not willing to part
with all the information on them.

 Non-performing assets is a vast topic and to do full justice to all the aspects of non-
performing assets is an impossible task for me.
Scope of The Study:
The scope of the study is limited to the objectives as mentioned earlier. The study
ranges from understanding the significance of non-performing assets to defining the criteria
of identifying non-performing assets in the banking sector, to review Bank of India‟s
performance in the management of non-performing assets.
It also reviews the framework of Bank of India‟s recovery policy with which it hopes
to bring down the percentage of net non-performing assets to the net advances. The study also
encompasses the recommendations, the adhering of which will bring good results to the
organization.

Techniques used for analysis of data:

Analytical tools are been used for data analysis. The analytical tools such as Pie charts, bar
graphs, tables are used to compare the past data with current so as to get a particular inference
from it on analysis.

Research Model

IV DV

Here,

IV= Independent variable

DV= Dependent variable

Regression analysis was carried out to test the impact of non-performing

assets on profitability of bank. Here, Non-performing assets is
independent variable and profitability is the dependent variable. So, study
utilized one DV-one IV liner model.
Research Design

Research designs is a frame work or blue print for conducting research

procedure is necessary for obtaining information to solve the problem.

Research Design

Exploratory Descriptive Casual

Research designed to assist the decision maker in determining, evaluating

and selecting the best course of action to take in a given situation.

Descriptive studies are usually the best methods for collecting

information that will demonstrate relationships and describe the world as
it exists. These types of studies are often done before an experiment to
know what specific things to manipulate and include in an experiment.
Descriptive studies are designed primarily to describe what is going or
what exist.

In our study we have conducted the descriptive research to study what is

the investor‟s opinion regarding the attrition rate of investment in the
stock market.

Sample Size

In this research study we have to taken public sector banks for the study
we have selected 28 banks for the study.
Hypotheses Of The Study

H0: There is no significant relationship between Non performing assets

and return on equity of Public Sector Banks.

H1: There is a significant relationship between Non performing assets

and return on equity of Public Sector Banks.

Table No. Descriptive Statistics

Variable Mean STD.Deviation N

NPA 1.1514 0.73002 140

ROE 15.4703 5.29179 140

There is no any analysis from the descriptive statistics so further

study is require.

Table No. ANNOVA Results for NPA

Sum Mean
Model Df F Sig
squares square
Regression 10.752 1 10.752 23.431 0

Residual 63.326 138 0.459

Total 74.078 139

Note: *P < 0.05
This model is fit because the significant level is less than 0.000.
There is impact of Non Performing Assets on Return on equity of
public sector banks.
 Table No. Coefficient For NPA

Un
Unstandardize standardize
Model T Sig.
coefficient B Coefficient
Std. error

1(constant) 1.965 0.177 11.07 0

NPA -0.053 0.011 -4.841 0

Note: *P < 0.05

In above table of coefficient there is significant is 0.000. So

Null hypotheses is not excepted so there is impact of Non
Performing Assets on profitability of public sector banks.

Table No. Model Summary

Change Statistics
Adjusted Std.Error
R
Model R R of the
Square R
Square Estimate F Sig. F
Square Df1 Df2
Change change
Change

1 0.381a 0.145 0.149 0.67741 0.145 23.431 1 138 0

Note: *P < 0.05

This Model is fit because significant level is less than 0.000

so there is impact of Non performing Assets on profitability
of public and private sector banks.
 Findings and
Suggestions
Findings

 Because of mismanagement in bank there is a positive relation

between Total Advances, Net Profits and NPA of bank which is
not good.

 Positive relation between NPA & profits are due to wrong choice
of clients by Banks.

 There is an adverse effect on the Liquidity of Bank.

 Bank is unable to give loans to the new customers due to lack of

funds which arises due to NPA

Suggestion

 Advances provided by banks need to be done pre-sanctioning

evaluation and post-disbursement control so that NPA can
decrease.

 Good management needed on the side of banks to decrease the

level of NPA.

 Proper selection of borrowers & follow ups required to get

timely payment.
 Conclusion
 NPAs reflect the overall performance of the banks.

 The NPAs have always been a big worry for the Public Sector
banks in india. The Indian banking sector faced a serious problem
of NPAs.

 A high level of NPAs suggests high probability of a large number

of credit defaults that affect the profitability and liquidity of
banks.

 The extent of NPAs has comparatively higher in public sectors

banks. To improve the efficiency and profitability, the NPAs have
to be scheduled.

 Various steps have been taken by government to reduce the NPAs.

It is highly impossible to have zero percentage NPAs. But at least
Indian banks should take care to ensure that they give loans to
creditworthy customers.
 Bibliography
http://www.capitaline.com/user/framepage.asp

http://www.denabank.com

http://www.abhinavjournal.com/images/Commerce_&_Management/Jul1
2/5.

http://www.academia.edu/4700608/A Study of Non-Performing Assets on

Selected Public and Private Sector Banks
 Annexure

NPA
No Name EPS RS. 2013 book value 2013 ROE 2013
2013
1 Allahabad Bank 3.19 22.68 209.92 10.80411585
2 Andhra Bank 2.45 22.19 150.85 14.7099768
3 Bank of Baroda 1.28 102.47 756.64 13.54276803
4 Bank of India 2.06 41.4 381.07 10.8641457
5 Bank of Maha 0.52 10.21 70.88 14.40462754
6 Canara Bank 2.18 62.62 515.68 12.14318957
7 Central Bank 2.9 7.61 113.23 6.720833701
8 Corporation Bank 1.19 90.9 625.58 14.53051568
9 Dena Bank 1.39 22.35 140.24 15.9369652
10 E X I M Bank 0 2.43 24.52 9.910277325
11 IOB 2.5 5.81 133.2 4.361861862
12 IDBI Bank 1.58 13.58 146.11 9.294367258
13 Indian Bank 2.26 34.68 242.89 14.27806826
14 NABAR D 0.01 4.52 101.38 4.458473072
15 Oriental Bank 2.27 43.95 414.69 10.59827823
16 Pun. & Sind Bank 2.16 12.14 145.56 8.340203353
17 Punjab Natl.Bank 2.35 129.73 884.04 14.67467535
18 SBT 1.46 119.76 873 13.71821306
19 St Bk of Bikaner 2.27 101.71 680.59 14.94438649
20 St Bk of Hyderab 1.61 6,025.16 36779.13 16.38200795
21 St Bk of India 2.1 200.71 1445.6 13.88420033
22 St Bk of Mysore 2.69 87.04 804.44 10.81994928
23 St Bk of Patiala 1.62 223.33 1812.36 12.32260699
24 Syndicate Bank 0.76 32.16 158.91 20.23787049
25 UCO Bank 3.17 7.56 97.19 7.778578043
26 Union Bank (I) 1.61 34.61 262.9 13.16470141
27 United Bank (I) 2.87 7.98 119.08 6.701377225
28 Vijaya Bank 1.3 8.98 82.66 10.86377934
 NPA
No Name EPS 2012 Book value 2012 ROE 2012
2012
1 Allahabad Bank 3.19 22.68 209.92 10.80411585
2 Andhra Bank 2.45 22.19 150.85 14.7099768
3 Bank of Baroda 1.28 102.47 756.64 13.54276803
4 Bank of India 2.06 41.4 381.07 10.8641457
5 Bank of Maha 0.52 10.21 70.88 14.40462754
6 Canara Bank 2.18 62.62 515.68 12.14318957
7 Central Bank 2.9 7.61 113.23 6.720833701
8 Corporation Bank 1.19 90.9 625.58 14.53051568
9 Dena Bank 1.39 22.35 140.24 15.9369652
10 E X I M Bank 0 2.43 24.52 9.910277325
11 IOB 2.5 5.81 133.2 4.361861862
12 IDBI Bank 1.58 13.58 146.11 9.294367258
13 Indian Bank 2.26 34.68 242.89 14.27806826
14 NABARD 0.01 4.52 101.38 4.458473072
15 Oriental Bank 2.27 43.95 414.69 10.59827823
16 Pun. & Sind Bank 2.16 12.14 145.56 8.340203353
17 Punjab Natl.Bank 2.35 129.73 884.04 14.67467535
18 SBT 1.46 119.76 873 13.71821306
19 St Bk of Bikaner 2.27 101.71 680.59 14.94438649
20 St Bk of Hyderab 1.61 6,025.16 36779.13 16.38200795
21 St Bk of India 2.1 200.71 1445.6 13.88420033
22 St Bk of Mysore 2.69 87.04 804.44 10.81994928
23 St Bk of Patiala 1.62 223.33 1812.36 12.32260699
24 Syndicate Bank 0.76 32.16 158.91 20.23787049
25 UCO Bank 3.17 7.56 97.19 7.778578043
26 Union Bank (I) 1.61 34.61 262.9 13.16470141
27 United Bank (I) 2.87 7.98 119.08 6.701377225
28 Vijaya Bank 1.3 8.98 82.66 10.86377934