A

PROJECT REPORT

ON

“A STUDY OF NON PERFORMING ASSETS WITH SPECIAL

REFERENCE TO ICICI BANK”

Submitted to

SANT BABA BHAG SINGH UNIVERSITY

In the partial fulfillment of the requirements for the award

of the degree of Master in Business Administration

Project Guide Submitted by

Ms. Nikita Harmandeep kaur

MBA 4th sem.

SBBSU 15206013

1
 DECLARATION

I Harmandeep kaur to declare that the Research project report entitled “A STUDY OF NON
PERFORMING ASSETS WITH SPECIAL REFERENCE TO ICICI BANK”Being submitted to
the SANT BABA BHAG SINGH UNIVERSITY for the partial fulfillment of the requirement for
the degree of Master of Business Administration is my own endeavors and it has not been
submitted earlier to any institution/university for any degree.

Place:

Date: (Harmandeep kaur)

2
 ACKNOWLEDGEMENT

With profound veneration, first of all we recline ourselves before ALMIGHTY without whose
blessings ourselves is cipher.
It is my pleasure to be indebted to various people, who directly or indirectly contributed in the
development of this work and who influenced my thinking, behavior, and acts during the course
of study.
As a student specializing in finance, I came to know about the ground realities in topics like
’Non Performing Assets with special reference to ICICI BANK’. For this I am indebted to Miss
Nikita my research project guidance & my faculty members who took personal interest in my
project and bore the associated headaches.
Lastly, I would like to thank the almighty and my parents for their moral support and my
colleagues with whom I shared my day-to-day experience and received lots off suggestions that
improved my work quality.

Harmandeep kaur

3
 ABSTRACT

A strong banking sector is important for flourishing economy. The failure of the banking sector
may have an adverse impact on other sectors. Non-performing assets are one of the major
concerns for banks in India.

NPAs reflect the performance of banks. A high level of NPAs suggests high probability of a large
number of credit defaults that affect the profitability and net-worth of banks and also erodes the
value of the asset. The NPA growth involves the necessity of provisions, which reduces the over
all profits and shareholders value.

The issue of Non Performing Assets has been discussed at length for financial system all over the
world. The problem of NPAs is not only affecting the banks but also the whole economy. In fact
high level of NPAs in Indian banks is nothing but a reflection of the state of health of the
industry and trade.

This report deals with understanding the concept of NPAs, its magnitude and major causes for an
account becoming non-performing, projection with special reference to ICICI bank.

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TABLE OF CONTENTS
CHAPTERS TOPIC PAGE NO.
CHAPTER 1 Introduction to company
(Banking Industry, ICICI
Bank)
CHAPTER 2 Objective of study
CHAPTER 3 Introduction to topic
CHAPTER 4 Review of literature
CHAPTER 5 Research methodology
CHAPTER 6 Data analysis and
interpretation
CHAPTER 7 Findings and suggestions
Limitations
CHAPTER 8 Conclusion
Bibliography

5
 CHAPTER 1
INTRODUCTION TO BANKING INDUSTRY

The crucial role of bank economists in transforming the banking system in India. Economists
have to be more ‘mainstreamed’ within the operational structure of commercial banks. Apart
from the traditional functioning of macro-scanning, the inter linkages between treasuries, dealing
rooms and trading rooms of banks need to be viewed not only with the day-to-day needs of
operational necessity, but also with analytical content and policy foresight.
Banking sector reforms in India has progressed promptly on aspects like interest rate
deregulation, reduction in statutory reserve requirements, prudential norms for interest rates,
asset classification, income recognition and provisioning. But it could not match the pace with
which it was expected to do. The accomplishment of these norms at the execution stages without
restructuring the banking sector as such is creating havoc.
During pre-nationalization period and after independence, the banking sector remained in private
hands Large industries who had their control in the management of the banks were utilizing
major portion of financial resources of the banking system and as a result low priority was
accorded to priority sectors. Government of India nationalized the banks to make them as an
instrument of economic and social change and the mandate given to the banks was to expand
their networks in rural areas and to give loans to priority sectors such as small scale industries,
self-employed groups, agriculture and schemes involving women.

6
To a certain extent the banking sector has achieved this mandate. Lead Bank Scheme enabled the
banking system to expand its network in a planned way and make available banking series to the
large number of population and touch every strata of society by extending credit to their
productive endeavours. This is evident from the fact that population per office of commercial
bank has come down from 66,000 in the year 1969 to 11,000 in 2004. Similarly, share of
advances of public sector banks to priority sector increased form 14.6% in 1969 to 44% of the
net bank credit.

Without a sound and effective banking system in India it cannot have a healthy economy. The
banking system of India should not only be hassle free but it should be able to meet new
challenges posed by the technology and any other external and internal factors.
For the past three decades India's banking system has several outstanding achievements to its
credit. The most striking is its extensive reach. It is no longer confined to only metropolitans or
cosmopolitans in India. In fact, Indian banking system has reached even to the remote corners of
the country. This is one of the main reasons of India's growth process.
Financial sector reform in India has progressed rapidly on aspects like interest rate deregulation,
reduction in reserve requirements, barriers to entry, prudential norms and risk-based supervision.
But progress on the structural-institutional aspects has been much slower and is a cause for
concern. The sheltering of weak institutions while liberalizing operational rules of the game is
making implementation of operational changes difficult and ineffective. Changes required to
tackle the NPA problem would have to span the entire gamut of judiciary, polity and the
bureaucracy to be truly effective.

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In liberalizing economy banking and financial sector get high priority. Indian banking sector of
having a serious problem due non performing. The financial reforms have helped largely to clean
NPA was around Rs. 52,000 crores in the year 2004. The earning capacity and profitability of the
bank are highly affected due to this

Non Performing Asset means 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 The Reserve Bank of India. The
level of NPA act as an indicator showing the bankers credit risks and efficiency of allocation of
resource.

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 HISTROY OF INDIAN BANKING

A bank is a financial institution that provides banking and other financial services. By the term
bank is generally understood an institution that holds a Banking Licenses. Banking licenses are
granted by financial supervision authorities and provide rights to conduct the most fundamental
banking services such as accepting deposits and making loans. There are also financial
institutions that provide certain banking services without meeting the legal definition of a bank, a
so-called Non-bank. Banks are a subset of the financial services industry.

The word bank is derived from the Italian banca, which is derived from German and means
bench. The terms bankrupt and "broke" are similarly derived from banca rotta, which refers to
an out of business bank, having its bench physically broken. Moneylenders in Northern Italy
originally did business in open areas, or big open rooms, with each lender working from his own
bench or table.

Typically, a bank generates profits from transaction fees on financial services or the interest
spread on resources it holds in trust for clients while paying them interest on the asset.
Development of banking industry in India followed below stated steps.

Ø Banking in India has its origin as early as the Vedic period. It is believed that the
transition from money lending to banking must have occurred even before Manu, the
great Hindu Jurist, who has devoted a section of his work to deposits and advances and
laid down rules relating to rates of interest.

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 Ø Banking in India has an early origin where the indigenous bankers played a very
important role in lending money and financing foreign trade and commerce. During the
days of the East India Company, was the turn of the agency houses to carry on the
banking business. The General Bank of India was first Joint Stock Bank to be established
in the year 1786. The others which followed were the Bank Hindustan and the Bengal
Bank.

Ø In the first half of the 19th century the East India Company established three banks; the
Bank of Bengal in 1809, the Bank of Bombay in 1840 and the Bank of Madras in 1843.
These three banks also known as Presidency banks were amalgamated in 1920 and a new
bank, the Imperial Bank of India was established in 1921. With the passing of the State
Bank of India Act in 1955 the undertaking of the Imperial Bank of India was taken by the
newly constituted State Bank of India.

Ø The Reserve Bank of India which is the Central Bank was created in 1935 by passing
Reserve Bank of India Act, 1934 which was followed up with the Banking Regulations in
1949. These acts bestowed Reserve Bank of India (RBI) with wide ranging powers for
licensing, supervision and control of banks. Considering the proliferation of weak banks,
RBI compulsorily merged many of them with stronger banks in 1969.

10
 COMPANY PROFILE
ICICI GROUP

In 1955, The Industrial Credit and Investment Corporation of India Limited (ICICI) incorporated
at the initiative of the World Bank, the Government of India and representatives of Indian
industry, with the objective of creating a development financial institution for providing
medium-term and long-term project financing to Indian businesses. Mr.A.Ramaswami Mudaliar
elected as the first Chairman of ICICI Limited.
ICICI emerges as the major source of foreign currency loans to Indian industry. Besides funding
from the World Bank and other multi-lateral agencies, ICICI was also among the first Indian
companies to raise funds from international markets

OVERVIEW

ICICI Group offers a wide range of banking products and financial services to corporate and
retail customers through a variety of delivery channels and through its specialised group
companies, subsidiaries and affiliates in the areas of personal banking, investment banking, life
and general insurance, venture capital and asset management. With a strong customer focus, the
ICICI Group Companies have maintained and enhanced their leadership position in their
respective sectors.

ICICI Bank is India's second-largest bank with total assets of Rs. 3,997.95 billion (US$ 100
billion) at March 31, 2008 and profit after tax of Rs. 41.58 billion for the year ended March 31,
2008. ICICI Bank is second amongst all the companies listed on the Indian stock exchanges in
terms of free float market capitalisation. The Bank has a network of about 1,308 branches and
3,950 ATMs in India and presence in 18 countries.

11
ICICI Prudential Life Insurance Company is a 74:26 joint venture with Prudential plc (UK). It
is the largest private sector life insurance company offering a comprehensive suite of life, health
and pensions products. It is also the pioneer in launching innovative health care products like
Diabetes Care and Cancer Care. The company operates on a multi-channel platform and has
distribution strength of over 2, 90,000 financial advisors operating from 1956 branches spread
across 1669 locations across the country. In addition to the agency force, it also has tie-ups with
various banks, corporate agents and brokers. In fiscal 2008, ICICI Prudential attained a market
share of 12.7% with new business weighted premium growth of 68.3% to Rs. 66.84 billion and
held assets of Rs. 285.78 billion at March 31, 2008.

ICICI Lombard General Insurance Company, a joint venture with the Canada based Fairfax
Financial Holdings, is the largest private sector general insurance company. It has a
comprehensive product portfolio catering to all corporate and retail insurance needs and is
present in over 200 locations across the country. ICICI Lombard General Insurance has achieved
a market share of 29.8% among private sector general insurance companies and an overall
market share of 11.9% during fiscal 2008. The gross return premium grew by 11.4% from Rs.
30.3 billion in fiscal 2007 to Rs. 33.45 billion in fiscal 2008.

ICICI Securities Ltd is the largest equity house in the country providing end-to-end solutions
(including web-based services) through the largest non-banking distribution channel so as to
fulfill all the diverse needs of retail and corporate customers. ICICI Securities (I-Sec) has a
dominant position in its core segments of its operations - Corporate Finance including Equity
Capital Markets Advisory Services, Institutional Equities, Retail and Financial Product
Distribution.

12
ICICI Securities Primary Dealership is the largest primary dealer in Government securities. In
fiscal 2008, it achieved a profit after tax of Rs.1.40 billion.

ICICI Prudential Asset Management is the second largest mutual fund with asset under
management of Rs. 547.74 billion and a market share of 10.2% as on March 31, 2008. The
Company manages a comprehensive range of mutual fund schemes and portfolio management
services to meet the varying investment needs of its investors through 235 branches spread
across the country. Incorporated in 1987, ICICI Venture is the oldest and the largest private
equity firm in India. The funds under management of ICICI Venture have increased at a 5 year
CAGR of 49% to Rs.95.50 billion as on March 31, 2008.
PRODUCTS

ICICI Group has always been at the forefront of developing innovative financial products, which
caters to various needs of people from all walks of life. Over the years, it has launched several
financial products that offer financial support, security and more to not just individuals, but to
big and small organisations too.

Banking Insurance & Investments

 Personal Banking Life insurance

 Global Private Clients General insurance

 Corporate Banking Mutual funds

 Business Banking

 NRI Banking

13
 Introduction to company(ICICI BANK)

ICICI Bank (formerly Industrial Credit and Investment Corporation of India) is India's
largest private bank and also the largest bank in the country. ICICI Bank has total assets of about
Rs.20.05bn (end-Mar 2005), a network of over 550 branches and offices, and about 1900 ATMs.
ICICI Bank offers a wide range of banking products and financial services to corporate and retail
customers through a variety of delivery channels and through its specialized subsidiaries and
affiliates in the areas of investment banking, life and non-life insurance, venture capital and asset
management.
ICICI Bank's equity shares are listed in India on stock exchanges at Kolkata and
Vadodara, the Stock Exchange, Mumbai and the National Stock Exchange of India Limited and
its ADRs are listed on the New York Stock Exchange (NYSE).

Formation:

 The World Bank, the Government of India and representatives of Indian industry form
ICICI Limited as a development finance institution to provide medium-term and long-
term project financing to Indian businesses in 1955.

 1994 ICICI establishes ICICI Bank as a subsidiary.

 1999 ICICI becomes the first Indian company and the first bank or financial institution
from non-Japan Asia to list on the NYSE.

 2001 ICICI acquired Bank of Madurai (est. 1943). Bank of Madurai was a Chettiar bank,
and had acquired Chettinad Mercantile Bank (est. 1933) and Illanji Bank (established
1904) in the 1960s.

14
  2002 The Boards of Directors of ICICI and ICICI Bank approve the merger of ICICI,
ICICI Personal Financial Services Limited and ICICI Capital Services Limited, with
ICICI Bank.

International Expansion

 2002 ICICI establishes representative offices in NY and London.

 2003 ICICI opens subsidiaries in Canada and the United Kingdom (UK), and in the UK it
establishes alliance with Lloyds TSB. It also opens an Offshore Banking Unit (OBU) in
Singapore and representative offices in Dubai and Shanghai.

 2004 ICICI opens a rep office in Bangladesh to tap the extensive trade between that
country, India and South Africa.

 2005 ICICI acquires Investitsionno-Kreditny Bank (IKB), a Russia bank with about
US$4mn in assets, head office in Balabanovo in the Kaluga region, and with a branch in
Moscow. ICICI Bank offers a high-interest (5.4% gross) internet savings account to UK
customers

15
Overview

ICICI Bank is India's second-largest bank with total assets of Rs. 3,849.70 billion (US$ 82
billion) at September 30, 2008 and profit after tax Rs. 17.42 billion for the half year ended
September 30, 2008. The Bank has a network of about 1,400 branches and 4,530 ATMs in India
and presence in 18 countries. ICICI Bank offers a wide range of banking products and financial
services to corporate and retail customers through a variety of delivery channels and through its
specialised subsidiaries and affiliates in the areas of investment banking, life and non-life
insurance, venture capital and asset management. The Bank currently has subsidiaries in the
United Kingdom, Russia and Canada, branches in United States, Singapore, Bahrain, Hong
Kong, Sri Lanka, Qatar and Dubai International Finance Centre and representative offices in
United Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. Our
UK subsidiary has established branches in Belgium and Germany.

ICICI Bank's equity shares are listed in India on Bombay Stock Exchange and the National Stock
Exchange of India Limited and its American Depositary Receipts (ADRs) are listed on the New
York Stock Exchange (NYSE).

16
 HISTORY OF ICICI

 1955 The Industrial Credit and Investment Corporation of India Limited (ICICI) was
incorporated at the initiative of World Bank, the Government of India and representatives
of Indian industry, with the objective of creating a development financial institution for
providing medium-term and long-term project financing to Indian businesses.

 1994 ICICI established Banking Corporation as a banking subsidiary.formerly Industrial

Credit and Investment Corporation of India. Later, ICICI Banking Corporation was
renamed as 'ICICI Bank Limited'. ICICI founded a separate legal entity, ICICI Bank, to
undertake normal banking operations - taking deposits, credit cards, car loans etc.

 2001 ICICI acquired Bank of Madura (est. 1943). Bank of Madura was a Chettiar bank,
and had acquired Chettinad Mercantile Bank (est. 1933) and Illanji Bank (established
1904) in the 1960s.

 2002 The Boards of Directors of ICICI and ICICI Bank approved the reverse merger of
ICICI, ICICI Personal Financial Services Limited and ICICI Capital Services Limited,
into ICICI Bank. After receiving all necessary regulatory approvals, ICICI integrated the
group's financing and banking operations, both wholesale and retail, into a single entity.

Also in 2002, ICICI Bank bought the Shimla and Darjeeling branches that Standard
Chartered Bank had inherited when it acquired Grindlays Bank.

17
 ICICI started its international expansion by opening representative offices in New York
and London.

 2003 ICICI opened subsidiaries in Canada and the United Kingdom (UK), and in the UK
it established an alliance with Lloyds TSB.

It also opened an Offshore Banking Unit (OBU) in Singapore and representative offices
in Dubai and Shanghai.

 2004 ICICI opens a rep office in Bangladesh to tap the extensive trade between that
country, India and South Africa.

 2005 ICICI acquired Investitsionno-Kreditny Bank (IKB), a Russia bank with about
US$4mn in assets, head office in Balabanovo in the Kaluga region, and with a branch in
Moscow. ICICI renamed the bank ICICI Bank Eurasia.

Also, ICICI established a branch in Dubai International Financial Centre and in Hong
Kong.

 2006 ICICI Bank UK opened a branch in Antwerp, in Belgium. ICICI opened

representative offices in Bangkok, Jakarta, and Kuala Lumpur.

 2007 ICICI amalgamated Sangli Bank, which was headquartered in Sangli, in

Maharashtra State, and which had 158 branches in Maharashtra and another 31 in
Karnataka State. Sangli Bank had been founded in 1916 and was particularly strong in
rural areas.

ICICI also received permission from the government of Qatar to open a branch in Doha.
ICICI Bank Eurasia opened a second branch, this time in St. Petersburg.

18
  2008 The US Federal Reserve permitted ICICI to convert its representative office in New
York into a branch.

CHAPTER 2
OBJECTIVE OF THE STUDY

Following are the objectives of the study:

Ø What types of challenges banking industry is facing with special reference to NPA.

Ø How ICICI bank cope with NPA and its impact in recent economic crisis.

Ø To find the factors that would effect level of NPAs.

Ø To analyze the significance of each variable that might effect the NPA level.

Ø To understand what is Non Performing Assets and what are the underlying reasons for the

emergence of the NPAs.

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 CHAPTER 3
INTRODUCTION TO TOPIC
(NON –PERFORMING ASSETS)

WHAT IS A NPA (NON PERFORMING ASSETS) ?

Action for enforcement of security interest can be initiated only if the secured asset is classified
as Nonperforming asset.

Non performing asset means an asset or account of borrower ,which has been classified by bank
or financial institution as sub –standard , doubtful or loss asset, in accordance with the
direction or guidelines relating to assets classification issued by RBI .

An amount due under any credit facility is treated as “past due” when it is not been paid within
30 days from the due date. Due to the improvement in the payment and settlement system,
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 shell be an advance where

i. Interest and/or installment of principal remain overdue for a period of more than 180
days in respect of a term loan,

20
ii. The account remains ‘out of order ‘ for a period of more than 180 days ,in respect of an
overdraft/cash credit (OD/CC)

iii. The bill remains overdue for a period of more than 180 days in case of bill purchased or
discounted.

iv. Interest and/or principal remains overdue for two harvest season but for a period not
exceeding two half years in case of an advance granted for agricultural purpose ,and

v. 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 ’90 days overdue ‘norms for identification of
NPAs ,from the year ending March 31,2004,a non performing asset shell be a loan or an
advance where;

i. Interest and/or installment of principal remain overdue for a period of more than
90 days in respect of a term loan,

ii. The account remains ‘out of order ‘ for a period of more than 90 days ,in respect
of an overdraft/cash credit (OD/CC)

iii. The bill remains overdue for a period of more than 90 days in case of bill
purchased or discounted.

iv. Interest and/or principal remains overdue for two harvest season but for a period
not exceeding two half years in case of an advance granted for agricultural
purpose ,and

v. Any amount to be received remains overdue for a period of more than 90 days in
respect of other accounts

Out of order

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 An account should be treated as out of order if the outstanding balance remains
continuously in excess of sanctioned limit /drawing power. in case where the out standing
balance in the principal operating account is less than the sanctioned amount /drawing power,
but there are no credits continuously for six months as on the date of balance sheet or credit are
not enough to cover the interest debited during the same period ,these account should be
treated as ‘out of order’.

Overdue

Any amount due to the bank under any credit facility is ‘overdue’ if it is not paid on due
date fixed by the bank.

FACTORS FOR RISE IN NPAs

The banking sector has been facing the serious problems of the rising NPAs. But the
problem of NPAs is more in public sector banks when compared to private sector banks and
foreign banks. The NPAs in PSB are growing due to external as well as internal factors.

 EXTERNAL FACTORS :-

Ø Ineffective recovery tribunal

The Govt. has set of numbers of recovery tribunals, which works for recovery of loans and
advances. Due to their negligence and ineffectiveness in their work the bank suffers the
consequence of non-recover, their by reducing their profitability and liquidity.

Ø Willful Defaults

There are borrowers who are able to payback loans but are intentionally withdrawing it. These
groups of people should be identified and proper measures should be taken in order to get back
the money extended to them as advances and loans.

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 Ø Natural calamities

This is the measure factor, which is creating alarming rise in NPAs of the PSBs. every now and
then India is hit by major natural calamities thus making the borrowers unable to pay back there
loans. Thus the bank has to make large amount of provisions in order to compensate those loans,
hence end up the fiscal with a reduced profit.

Mainly ours farmers depends on rain fall for cropping. Due to irregularities of rain fall the
farmers are not to achieve the production level thus they are not repaying the loans.

Ø Industrial sickness
Improper project handling , ineffective management , lack of adequate resources , lack of
advance technology , day to day changing govt. Policies give birth to industrial sickness. Hence
the banks that finance those industries ultimately end up with a low recovery of their loans
reducing their profit and liquidity.

 INTERNAL FACTORS :-

Ø Defective Lending process

There are three cardinal principles of bank lending that have been followed by the commercial
banks since long.
i. Principles of safety
ii. Principle of liquidity
iii. Principles of profitability

Ø Inappropriate technology

Due to inappropriate technology and management information system, market driven

decisions on real time basis can not be taken. Proper MIS and financial accounting
system is not implemented in the banks, which leads to poor credit collection, thus NPA.
All the branches of the bank should be computerized.

Ø Improper SWOT analysis

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 The improper strength, weakness, opportunity and threat analysis is another reason for
rise in NPAs. While providing unsecured advances the banks depend more on the
honesty, integrity, and financial soundness and credit worthiness of the borrower.

 Banks should consider the borrowers own capital investment.

 it should collect credit information of the borrowers from_

a. From bankers.
b. Enquiry from market/segment of trade, industry, business.
c. From external credit rating agencies.

 Analyze the balance sheet.

True picture of business will be revealed on analysis of profit/loss a/c and balance
sheet.

 Purpose of the loan

When bankers give loan, he should analyze the purpose of the loan. To ensure
safety and liquidity, banks should grant loan for productive purpose only. Bank
should analyze the profitability, viability, long term acceptability of the project
while financing.

Ø Poor credit appraisal system

Poor credit appraisal is another factor for the rise in NPAs. Due to poor credit appraisal
the bank gives advances to those who are not able to repay it back. They should use good
credit appraisal to decrease the NPAs.

Ø Managerial deficiencies

The banker should always select the borrower very carefully and should take tangible
assets as security to safe guard its interests. When accepting securities banks should
consider the_

1. Marketability

24
 2. Acceptability
3. Safety
4. Transferability.

The banker should follow the principle of diversification of risk based on the
famous maxim “do not keep all the eggs in one basket”; it means that the banker should
not grant advances to a few big farms only or to concentrate them in few industries or in a
few cities. If a new big customer meets misfortune or certain traders or industries affected
adversely, the overall position of the bank will not be affected.

Like OSCB suffered loss due to the OTM Cuttack, and Orissa hand loom
industries. The biggest defaulters of OSCB are the OTM (117.77lakhs), and the
handloom sector Orissa hand loom WCS ltd (2439.60lakhs).

Ø Absence of regular industrial visit

The irregularities in spot visit also increases the NPAs. Absence of regularly visit of
bank officials to the customer point decreases the collection of interest and principals on
the loan. The NPAs due to willful defaulters can be collected by regular visits.

Ø Re loaning process

Non remittance of recoveries to higher financing agencies and re loaning of the same
have already affected the smooth operation of the credit cycle.

Due to re loaning to the defaulters and CCBs and PACs, the NPAs of OSCB is increasing
day by day.

25
PROBLEMS DUE TO NPA

1. Owners do not receive a market return on there capital .in the worst case, if the banks
fails, owners loose their assets. In modern times this may affect a broad pool of
shareholders.

2. Depositors do not receive a market return on saving. In the worst case if the bank fails,
depositors loose their assets or uninsured balance.

3. Banks redistribute losses to other borrowers by charging higher interest rates, lower
deposit rates and higher lending rates repress saving and financial market, which hamper
economic growth.

4. Non performing loans epitomize bad investment. They misallocate credit from good
projects, which do not receive funding, to failed projects. Bad investment ends up in
misallocation of capital, and by extension, labour and natural resources.

Non performing asset may spill over the banking system and contract the money stock, which
may lead to economic contraction. This spill over effect can channelize through liquidity or bank
insolvency:
a) When many borrowers fail to pay interest, banks may experience liquidity shortage. This
can jam payment across the country,
b) Illiquidity constraints bank in paying depositors
.c) Undercapitalized banks exceeds the banks capital base.
The three letters Strike terror in banking sector and business circle today. NPA is short form of
“Non Performing Asset”. The dreaded NPA rule says simply this: when interest or other due to a
bank remains unpaid for more than 90 days, the entire bank loan automatically turns a non
performing asset. The recovery of loan has always been problem for banks and financial

26
institution. To come out of these first we need to think is it possible to avoid NPA, no can not be
then left is to look after the factor responsible for it and managing those factors.

Ø Interest and/or instalment 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
purposes, and

Ø Any amount to be received remains overdue for a period of more than 90 days in
respect of other accounts.

As a facilitating measure for smooth transition to 90 days norm, banks have been advised to
move over to charging of interest at monthly rests, by April 1, 2002. However, the date of
classification of an advance as NPA should not be changed on account of charging of interest at
monthly rests. Banks should, therefore, continue to classify an account as NPA only if the
interest charged during any quarter is not serviced fully within 180 days from the end of the
quarter with effect from April 1, 2002 and 90 days from the end of the quarter with effect from
March 31, 2004.

27
 CHAPTER 4
LITERATURE REVIEW

NON PERFORMING ASSETS (NPA)

Action for enforcement of security interest can be initiated only if the secured asset is classified
as Nonperforming asset. Non performing asset means an asset or account of borrower, which has
been classified by bank or financial institution as sub –standard , doubtful or loss asset, in
accordance with the direction or guidelines relating to assets classification issued by RBI . An
amount due under any credit facility is treated as “past due “when it is not been paid within 30
days from the due date. Due to the improvement in the payment and settlement system, 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 shell be an advance where
i. Interest and/or instalment of principal remain overdue for a period of more than 180 days in
respect of a term loan,
ii. The account remains ‘out of order ‘for a period of more than 180 days, in respect of an
overdraft/cash credit (OD/CC)

What caused such high NPAs in the system until 1995?

Some key reasons for huge NPAs until mid-1990s are as follows:
� Absence of competition: The entire banking sector was state-owned; there was complete
absence of any kind of competition from the private sector.
� Lack of focus and control: The government-controlled operations of banks resulted in
favoritisms in terms of lending, besides lack of focus on quality of lending. Managements of

28
banks lacked any control on operations of their banks, while directors largely were influenced by
the will of power-circles.

� Collateral-based lending and a dormant legal recourse system: Collateral was considered
king. Under the name of collateral, large sums of loans were disbursed, and in the absence of an
active legal recovery system, loan repayment and quality considerations took a back seat.
� Corruption and bureaucracy: Political interference and lack of supervision increased
corruption and redtapism in the banking system. This resulted in complete dilution of credit
quality and control procedures.
� Inadequacy of capital and tools relating to asset quality monitoring: Banks suffered from
shortage of capital funds to pursue any meaningful investments in quality control, loan
monitoring, etc. This inadequacy of funds, together with the absence of independent
management, led to low focus on asset quality tracking and taking corrective actions.
The situation changed after 1993, when the Reserve Bank of India (RBI) with the government's
support, came up with several decisions on managing Indian banks that had a salutary impact,
and the future never looked so much in control henceforth.
There was a significant decline in the non-performing assets (NPAs) of SCBs in 2003-04, despite
adoption of 90 day delinquency norm from March 31, 2004. The gross NPAs of SCBs declined
from 4.0 per cent of total assets in 2002-03 to 3.3 per cent in 2003-04. The corresponding decline
in net NPAs was from 1.9 per cent to 1.2 per cent. Both gross NPAs and net NPAs declined in
absolute terms. While the gross NPAs declined from Rs. 68,717 crore in 2002-03 to Rs. 64,787
crore in 2003-04, net NPAs declined from Rs. 32,670 crore to Rs. 24,617 crore in the same
period. There was also a significant decline in the proportion of net NPAs to net advances from
4.4 per cent in 2002-03 to 2.9 per cent in 2003-04. The significant decline in the net NPAs by
24.7 per cent in 2003-04 as compared to 8.1 per cent in 2002- 03 was mainly on account of
higher provisions (up to 40.0 per cent) for NPAs made by SCBs.
The decline in NPAs in 2003-04 was witnessed across all bank groups. The decline in net NPAs
as a proportion of total assets was quite significant in the case of new private sector banks,

29
followed by PSBs. The ratio of net NPAs to net advances of SCBs declined from 4.4 per cent in
2002-03 to 2.9 per cent in 2003-04. Among the bank groups, old private sector banks had the

highest ratio of net NPAs to net advances at 3.8 per cent followed by PSBs (3.0 per cent) new
private sector banks (2.4 per cent) and foreign banks (1.5 per cent)
An analysis of NPAs by sectors reveals that in 2003-04, advances to non-priority sectors
accounted for bulk of the outstanding NPAs in the case of PSBs (51.24 per cent of total) and for
private sector banks (75.30 per cent of total). While the share of NPAs in agriculture sector and

SSIs of PSBs declined in 2003-04, the share of other priority sectors increased. The share of
loans to other priority sectors in priority sector lending also increased. Measures taken to reduce
NPAs include reschedulement, restructuring at the bank level, corporate debt restructuring, and
recovery through Lok Adalats, Civil Courts, and debt recovery tribunals and compromise
settlements. The recovery management received a major fillip with the enactment of the
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest
(SARFAESI) Act, 2002 enabling banks to realise their dues without intervention of courts and
tribunals. The Supreme Court in its judgment dated April 8, 2004, while upholding the
constitutional validity of the Act, struck down section 17 (2) of the Act as unconstitutional and
contrary to Article 14 of the Constitution of India. The Government amended the relevant
provisions of the Act to address the concerns expressed by the Supreme Court regarding a fair
deal to borrowers through an ordinance dated November 11, 2004. It is expected that the
momentum in the recovery of NPAs will be resumed with the amendments to the Act.
The revised guidelines for compromise settlement of chronic NPAs of PSBs were issued in
January 2003 and were extended from time to time till July 31, 2004. The cases filed by SCBs in
Lok Adalats for recovery of NPAs stood at 5.20 lakh involving an amount of Rs. 2,674 crore
(prov.). The recoveries effected in 1.69 lakh cases amounted to Rs. 352 crore (prov.) as on
September 30, 2004. The number of cases filed in debt recovery tribunals stood at 64, 941 as on

30
June 30, 2004, involving an amount of Rs. 91,901 crore. Out of these, 29, 525 cases involving an
amount of Rs. 27,869 crore have been adjudicated. The amount recovered was to Rs. 8,593

crore. Under the scheme of corporate debt restructuring introduced in 2001, the number of cases
and value of assets restructured stood at 121 and Rs. 69,575 crore, respectively, as on December
31, 2004. Iron and steel, refinery, fertilisers and telecommunication sectors were the major
beneficiaries of the scheme. These sectors accounted for more than two-third of the values of
assets restructured.
Capital adequacy ratio
The concept of minimum capital to risk weighted assets ratio (CRAR) has been developed to
ensure that banks can absorb a reasonable level of losses. Application of minimum CRAR
protects the interest of depositors and promotes stability and efficiency of the financial system.
At the end of March 31, 2004, CRAR of PSBs stood at
13.2 per cent, an improvement of 0.6 percentage point from the previous year. There was also an
improvement in the CRAR of old private sector banks from 12.8 per cent in 2002-03 to 13.7 per
cent in 2003-04. The CRAR of new private sector banks and foreign banks registered a decline in
2003-04. For the SCBs as a whole the CRAR improved from 12.7 per cent in 2002-03 to 12.9
per cent in 2003-04. All the bank groups had CRAR above the minimum 9 per cent stipulated by
the RBI. During the current year, there was further improvement in the CRAR of SCBs. The
ratio in the first half of 2004-05 improved to 13.4 per cent as compared to 12.9 per cent at the
end of 2003-04. Among the bank groups, a substantial improvement was witnessed in the case of
new private sector banks from 10.2 per cent as at the end of 2003-04 to 13.5 percent in the first
half of 2004-05. While PSBs and old private banks maintained the CRAR at almost the same
level as in the previous year, the CRAR of foreign banks declined to
14.0 per cent in the first half of 2004-05 as compared to 15.0 per cent as at the end of 2003-04.

31
The above picture is self-explanatory. Over the period of time, Indian commercial banks have
shown tremendous improvement in terms of quality of credit. NPAs, both at gross and net levels,
as a percentage of advances, have fallen consistently. The gross NPA/Advances ratio has fallen
from 16% in FY97 to less than 2.5% in FY08. Banks displayed great control over credit quality,
as even in times of falling IIP and GDP growth, they continued to show fewer NPAs. This is a
very impressive indicator that highlights the fact that Indian banking has shown substantial
improvement in terms of asset quality management even in adverse macro-economic conditions.
FY99, FY01 and FY02 saw considerable fall in industrial production from the then existing
levels. However, this did not lead to any increase in bank NPAs. On the contrary, banks
improved NPA ratios considerably through the exercise of strong asset quality monitoring
programmes. The current environment is again indicating a decline in GDP, and IIP growth rates
as slowdown hits demand and consumption across all major sectors. However, we strongly
believe that managements of top Indian banks have put 'NPA Management and Control' as one of
their top priorities, and that even though there would be a jump in NPAs as a proportion of total

32
assets, the banking sector has the ability to withstand this jump and still emerge as a strong
performer in these extremely difficult times.

What changed the scenario of NPAs after 1995?

Some of the key factors that contributed to the fall in NPAs in the Indian banking
 Introduction of competition: The RBI opened up gates for the private sector participation in
the Indian banking industry. HDFC, the principal mortgage lender, got the first approval to
start a private bank in the reform-driven era. HDFC Bank was given permission to carry on
commercial banking operations. Many new private banks and foreign banks were allowed
later, which brought in the much-required competition in the Indian banking industry.
 Guidelines on NPAs, income recognition, capital adequacy: One of the key reasons for
such a drastic fall in system NPAs was the introduction of asset and capital quality
guidelines. These norms, introduced on the basis of the Narasimhan Committee report in
1993, had a revolutionary impact on the way banks managed and controlled their asset book.
 Separation of control: Bank managements were given a free hand to run their businesses as
the Ministry of Finance and the RBI moved away from controlling positions to supervising
and regulating positions. This enabled boards of Indian banks to take uninfluenced calls as to
lending and asset control.
 Improvement of the legal recourse mechanism: This is another significant step. Through
Debt Recovery Tribunal (DRT), Lok Adalat mechanism for small loans, and One-Time
Settlement (OTS) mechanism for stressed loans in 1999, the central bank ensured that there
is a quick clean-up of sticky assets, so as to enable banks to start functioning with a clean
slate. The legal recourse for amounts lent has been an important contributor to asset quality
improvement.

33
 Capital infusion: Public banks were allowed to bring down the government holding to 51%,
thereby enabling flow of fresh money for much-needed banks and also roping in investment
interest from market participants. Board of directors now became more independent, and a
mixed lot of individuals brought in experience from various segments of the financial world.
 Establishment of CIBIL: Credit Information Bureau of India Ltd was established in 2000.
This institution started to maintain a database of borrowers and their credit history. This
served as a very effective tool for loan sanctioning and asset quality maintenance. Banks use
the database to ensure credit does not fall in the hands of a borrower, with a bad credit
record.
 Asset Reconstruction Company: ARCs were permitted to operate from 2002; these
institutions helped the removal of bank's focus on bad assets by acquiring their bad loans,
thereby strengthening their balance sheets.
 Corporate Debt Restructuring, SICA: The CDR mechanism, sick industries revival
enactments enabled addressing issues of troubled borrowers through effective hand-holding
and bank support. This prevented further slippage of asset quality.
 Exposure limits (sector-wise and borrower-wise): The RBI put in place strict exposure
limits for banks with respect to sensitive sectors like real estate and capital markets. In
addition, limits on amounts a bank can lend to a specific borrower, or a borrower group
helped in non-concentration of funds as loans in a few hands, thereby diversifying the risk of
default.
 Risk management tools: The RBI ensured that banks have effective risk measurement,
management and control systems in place, so as to avoid credit shocks. Asset liability
management (ALM), value at risk (VAR), control on off-balance sheet exposures, credit risk
weightages, etc. are few concepts that enabled banks to effectively control NPAs.
 In this context of a highly improved, dynamic and competitive domestic banking
environment, we expect that Indian banks will exercise adequate caution in terms of the

34
 quality of their loan-books. In addition, some of the steps (underlined) can be effectively
used again by RBI and the government, if the condition of NPAs worsens.

CHAPTER 5
RESEARCH METHODOLOGY

Research design: Meaning

In everyday life human being has to face many problems viz. social, economic, financial
problems. These problems in life call for acceptable and effective solutions and for this purpose,
research is required and a methodology applied for the solutions can be found out. Research
design of project is:-

1. Descriptive Research

2. Exploratory Research

Data collection:
Data includes facts and figures, which are required to be collected to achieve the objectives of
the project. In order to determine the present position and satisfaction of non – performaing
assets in ICICI.

Primary Data:

Primary data was collected through survey method by distributing questionnaires. The
questionnaires were carefully designed by taking into account the parameters of my study.

35
Secondary Data:

Data was collected from books, magazines, web sites, going through the records of the
organization, etc. It is the data which has been collected by individual or someone else for the
purpose of other than those of our particular research study. Or in other words we can say that
secondary data is the data used previously for the analysis and the results are undertaken for the
next process.

36
 FINANCIAL STATEMENT OF ICICI
Financial of ICICI bank
Performance Review – Quarter ended December 31, 2008
• Profit after tax of Rs. 1,272 crore; 25% increase over second quarter
• 23% year-on-year increase in operating profit for the quarter ended December 31, 2010
• Strong capital adequacy ratio of 15.6%; highest among large Indian banks
• 19% year-on-year reduction in costs due to cost rationalization measures
• Branch network increased to 1,416 branches The Board of Directors of ICICI Bank Limited
(NYSE: IBN) at its meeting held at Mumbai today, approved the audited accounts of the Bank
for the quarter ended December 31, 2008
Highlights
• The profit after tax for Q3-2010 was Rs. 1,272 crore (US$ 261 million) which represents an
increase of 25% over the profit after tax of Rs. 1,014 crore (US$ 208 million) in the quarter
ended September 30, 2009 (Q2-2010). Profit after tax for the quarter ended December 31,2008
(Q3-2009) was Rs. 1,230 crore (US$ 253 million).
• Operating profit for Q3-2010 was Rs. 2,771 crore (US$ 569 million) which represents an
increase of 23% over operating profit of Rs.2,259 crore (US$ 464 million) for Q3-2010.
• Net interest income for Q3-2009 was Rs. 1,990 crore (US$ 409 million) compared to the net
interest income of Rs. 1,960 crore (US$ 402 million) for Q3-2009.
• The Bank earned treasury income of Rs. 976 crore (US$ 200 million) in Q3-2010, primarily by
positioning its treasury strategy to benefit from the decline in yields on government bonds.

37
• Operating expenses decreased 19% to Rs. 1,680 crore (US$ 345 million) in Q3-2010 from Rs.
2,080 crore (US$ 427 million) for Q3- 2009. The cost/average asset ratio for Q3-2010 was 1.8%
compared to 2.2% for Q3-2009.

Capital adequacy
The Bank’s capital adequacy at December 31, 2009 as per Reserve Bank of India’s revised
guidelines on Basel II norms was 15.6% and Tier-1 capital adequacy was 12.1%, well above
RBI’s requirement of total capital adequacy of 9.0% and Tier-1 capital adequacy of 6.0%.
Asset quality
At December 31, 2008, the Bank’s net non-performing asset ratio was 1.95% on an
unconsolidated basis. The consolidated net NPA ratio of the Bank and its subsidiaries was 1.6%.
The specific provisions for nonperforming assets (excluding the impact of farm loan waiver)
were Rs. 868 crore (US$ 185 million) in Q2-2009 compared to Rs. 878 crore (US$ 187 million)
in Q1-2009.
􀁺 Consolidated net NPA ratio of the Bank and its subsidiaries at 1.6%
􀁺 Gross retail NPLs of Rs. 69.57 bn and net retail NPLs of Rs. 26.77 bn at September 30, 2008
􀁺 Unsecured products constitute 57% of net retail NPLs

38
39
40
Comparison 2011- 2012- 2013- 2014- 2015- Group All Banks'
XItems 12 13 14 15 16 Average Average
2015-16 2015-16
No. of offices 419 515 569 716 1268 359 795
No. of 13609 18029 25384 33321 40686 7232 11573
employees
Business per 1010.0 880.00 905.00 1027.0 1008.0 717.52 634.09
employee (in Rs. 0 0 0
lakh)
Profit per 12.00 11.00 10.00 9.00 10.00 5.72 4.67
employee (in Rs.
lakh)
Capital and 8360 12900 22556 24663 46820 3973 3994
reserves &
surplus
Deposits 68109 99819 16508 23051 24443 29351 42026
3 0 1
Investments 43436 50487 71547 91258 11145 12096 14888
4
Advances 62648 91405 14616 19586 22561 22539 31355
3 6 6
Interest income 9002 9410 14306 21996 30788 3093 3919
Other income 3065 3416 4181 6928 8811 733 751
Interest 7015 6571 9597 16358 23484 2108 2633
expended
Operating 2571 3299 5001 6691 8154 881 977

41
expenses
Cost of Funds 3.59 3.02 4.01 5.34 6.40 6.13 5.81
(CoF)
Return on 6.94 5.75 4.58 4.08 4.33 4.87 4.11
advances
adjusted to CoF
Wages as % to 5.70 7.47 7.41 7.01 6.57 10.34 13.96
total expenses

COMPARISON OF BANKS ON VARIOUS PARAMETERS

I analysed the above banks on various parameters to find out how they are placed in terms of
business growth, efficiency and the comfort they provide in terms of their current financial
standing and business exposures.
The growth-related variables indicate the last 5-year CAGR banks achieved in advances and
deposits. It also carries a ranking of these banks in terms of their latest CASA ratio. Axis Bank
emerges as an out-performer in this category.
On efficiency-related parameters, the cost/income ratio, quality of advances and the extent of
loan loss-loss provision coverage have been reviewed, and banks have been accordingly ranked.
PNB leads the pack with high scores in each variable.
In the next segment, certain comfort-related yardsticks have been compared. Capital-raising by
banks to bolster future growth, real estate exposure and overseas dependence for the business
have been compared. Although PNB did not raise any fresh capital and ranks last on that metric,
it ranks as the best bank with lower real estate and foreign exposure, which is critical during a
global economic slowdown. Also, we analysed banks that generate the maximum core interest
income as a proportion of total income. ICICI Bank and Axis Bank have greater proportions of
their income coming from 'other income' and these segments might have greater tendency to
show slower growth in the current scenario. A detailed analysis of the above parameters is
presented in the ensuing paragraphs.

42
43
 CHAPTER 6
DATA ANALYSIS & INTERPRETATION

GROWTH METRIC - LOAN GROWTH COMPARISON

The chart below shows that the last 5 years loan growth achieved by India's major banks. HDFC
Bank showed consistent growth over the last 3 years (even though it shows a slight falling trend
in the 5-year chart). Axis Bank achieved a high compounded annual growth during this period,
followed by ICICI Bank.
Loan growth CAGR (from FY04 to FY08)

44
GROWTH METRIC - DEPOSIT COMPARISON

In terms of the deposit growth (CAGR) achieved by these banks during the last 5 years, Axis
Bank and ICICI Bank retain top two slots as seen in loan growth. ICICI Bank registered a
deposit growth of just 6% in FY08. This was in sharp contrast to the 40% growth the bank
achieved in the 4 years before FY08. PSU banks, on the other hand, grew at a much slower pace.

Deposits growth CAGR (from FY04 to FY08)

AXIS BOB BOI HDFC ICICI PNB SBI
BANK
43% 20% 20% 35% 38% 17% 14%

45
LOAN BOOK ANALYSIS - UNSECURED LOANS AND NPAS
Unsecured loans primarily include personal loans and credit card exposures, priority sector
lending in rural areas, education loans, credits to SMEs (small and medium entrepreneurs) up to
Rs 5 lakh, etc. Exposure of Indian banks towards unsecured loans rose consistently over the
years. As shown in the chart below, HDFC Bank has the highest, with around 30% of its total
loans exposed to such loans.

46
Though there is no direct correlation between loan losses and unsecured loan exposure, in an
economic slowdown scenario, such exposure will carry a greater stress, and hence, a higher
probability of default. Banks need to be extremely vigilant in terms of monitoring these loans
regularly, so that losses in the form of NPAs do not increase unreasonably and dent the quality of
the loan book.
However, a review of the gross NPA ratio, i.e., GNPA as a percentage of advances indicates that
HDFC Bank and other banks have ensured that the NPA increase is proportionate to that of the
loan growth. In fact, PSU banks have shown tremendous improvement in terms of loan quality,
as the GNPA ratio for these banks fell from average 8-9% levels to less than 3% levels in the last
5 years. Only ICICI Bank has shown deterioration of its loan quality as reflected in its increasing
GNPA ratio. The main reason for this increase is that the bank has substantial exposure to the
47
retail segment, including huge exposure to the real estate segment at almost 36% of total loans
that includes close to 30% exposure in the form of housing loans. The retail segment constitutes
close to 75% of ICICI Bank's NPAs.

COMPOSITION OF LOAN BOOK: December 31, 2016

48
Total loan book: Rs. 2,125 bn Total retail loan book: Rs. 1,145 bn

GROSS NPA RATIO

49
Gross NPA is the ratio of gross NPA to gross advances of the bank. Gross NPA is the sum of all
loan assets that are classified as NPA as per the RBI guidelines. The ratio is to be counted in
terms of percentage and the formula for GNPA is as follows:
GNPA RATIO ( IN %)

icici
hdfc
bob
sbi
pnb
boi

YEARS

The table above indicates the quality of the credit portfolio of the banks. High gross NPA ratio
indicates the low credit portfolio of bank and vice-versa.

Gross NPA of all the banks decrease from year 2005 to 2006. But from year 2006 onwards it
starts increasing. Similiary, GNPA of ICICI bank first decrease to 1.5% from 4.7 in year 2005.
But than increasees to the level of 4.14 % in December 2008.

NET NPA RATIO:

50
The Net NPA ratio is the ratio of net NPA to advances, in which the provision is to be deducted
from the gross advance. The provision is to be made for NPA account. The formula for that is:
NNPA RATIO (IN %)

icici
hdfc
bob
sbi
pnb
boi

BANKS

The ratio indicates the degree of risk in the portfolio of the banks. High NPA ratio indicates the
high quantity of risky assets in the banks for which no provision are made.
Here, NNPA ratio decrease from year 2004 to 2009. But in last two years NNPA ratio
increase little bit due to global meltdown. Same is the case with ICICI bank. Whose NNPA ratio
decreases to .72% in year 2006 from 2.21% in year 2004. But it increases to 1.95% in December
2008.

CAPITAL ADEQUACY RATIO

51
Capital adequacy ratio can be defined as ratio of the capital of the bank, to its assets, which are
weight/adjusted according to risk attached .
As per prudential norms banks were required to achieve 8% CAR, increased to 9% by March
2000.
CAPITAL ADEQUACY RATIO (IN %)

icici
hdfc
bob
sbi
pnb
boi

YEARS

It is clear from the graph that in last few year CAR increases which indicates that indian banks
are in more strong position than theiar counter parts in rest of the world.

ICICI bank also maintains good CAR than required as per norms. Which shows that despite of
exposure of global melt down health of ICICI remains unaffect.

52
EFFICIENCY COMPARISON - COST / INCOME RATIOS OF BANKS
In terms of control over costs, the below table explains cost/income ratios of these banks over the
last 5 years. At the end of FY08, all banks have a similar cost/income ratio averaging between
48- 50%. However, Bank of India has substantially lower cost-to-income ratio of 42%.

53
LOAN LOSS COVERAGE RATIO
A not-so-encouraging sign in terms of NPA management of Indian banks is the fact that the loan
loss coverage ratio for banks as a group has reduced over the last 2 years. From 60% levels, the
coverage ratio has fallen to around 55%.

54
 CHAPTER 7
SUGGESTION
After all these points, I just want to say that NPA is a big problem of banks. Due to this crisis the

NPA are also increased. That’s why all the banks are facing problems and ICICI bank is top

most in those banks, ICICI banks has a big exposure in that crisis as compare to other banks. So

banks have to take care of those banks. My recommendations are:

1. Strengthening provision norms and loan classification standards based on forward

looking criteria (like future cash flows) were implemented.

2. Through securitization they can reduce NPA

3. Speed of action- the speedy containment of systematic risk and the domestic

credit crunch problem with the injection of large public fund for bank

recapitalization are critical steps towards normalizing the financial system.

4. Strengthening legal system

5. Maintain required capital adequacy ratio as per basel 2 norms. That means now

the provision for NPL will be more. This may look a conservative approach. But it

should be implemented to reduce risk.

6. Modification in accounting system

7. Use the concept of credit derivative

8. Aligning of prudential norms with international standard.

55
 LIMITATION OF THE STUDY

The limitation that I felt in my study are:

 It was critical for me to gather the financial data of the every bank of the public sector

banks so the better evaluation of the performance of the banks are not possible.

 Since my study is based on the secondary data, the practical operation as related to the

NPAs are adopted by the banks are not learned.

 Since the Indian banking sector is so wide so it was possible for me to cover all the

banks of the Indian banking sector.

56
 CHAPTER 8
CONCLUSION
The issue of Non-Performing Assets (NPAs) in the financial sector has been an area of concern
for all economies and reduction in NPAs has become synonymous with functional efficiency of
financial intermediaries. Although NPAs are a balance sheet issue of individual banks and
financial institutions, it has wider macroeconomic implications. It is important that, if resolution
strategies for recovery of dues from NPAs are not put in place quickly and efficiently, these
assets would deteriorate in value over time and only scrap value would be realized at the end. It
should, however, be kept in mind that NPAs are an integral part of the business financial sector
and the players are in as they are in the business of taking risk and their earnings reflect the risk
they take. They operate in an environment, where there would be defaults as well as deterioration
in portfolio value, as market movements can never be predicted with certainty. It is in this
context, that countries have adopted regulatory measures and the guiding structure has been
provided by the Basel guidelines.
There are various reasons for assets turning non-performing and there can be alternative
resolution strategies. Identification of the reasons and timely action are the key to improved
profitability of financial sector intermediaries. In this context, the details of the CAMEL model
that RBI introduced for evaluating performance of banks and the need for this arose from the
systemic generation of large volume of NPAs. CAMEL covers capital adequacy, asset quality,
management quality, earnings ability and liquidity.

57
 REFERENCES
Ø Pandey I M , financial management, Vikas publication, new Delhi, 2007

Ø Khan M Y and K Jain “management accounting: Tata Mcgraw-Hill Publishing

Company Limited, New Delhi 1999

Ø Malhotra Naresh, Marketing Research

Ø Annual reports of ICICI bank from year 2004 to 2009

Ø Annual reports of HDFC from year 2004 to 2009

Ø Annual reports of SBI from year 2004 to 2009

Ø Annual reports of Bank of Boarda from year 2004 to 2009

Ø Annual reports of Bank of India from year 2004 to 2009

Ø Research paper of Prasanta K Reddy

Ø www.geocities.com/kstability/content/index.html

Ø http://en.wikipedia.org/wiki/banking in india

Ø www.rbi.org.in

58