A

COMPREHENSIVE PROJECT REPORT ON

“NON PERFORMING ASSETS”
SUBMITTED TO
SHAYONA INSTITUTE OF BUSINESS MANAGEMENT
IN PARTIAL FULFILLMENT OF THE REQUIREMENT
OF THE AWARD FOR THE DEGREE OF

MASTER OF BUSINESS ADMINISTRATION

IN
GUJARAT TECHNOLOGICAL UNIVERSITY

UNDER THE GUIDANCE OF

ASSISTANT PROF. NEELRAJSHIH VAGHELA

SUBMITTED BY

MAYUR MEVADA (ENROLLMENT NO:- 178200592018)

TASMAI RAVAL (ENROLLMENT NO:- 178200592032)

MBA SEMESTER-4

BATCH NO: 2018-19

 DECLARATION
We Mayur Mevada (Enrolment: 178200592018) and Tasmai Raval (Enrolment:
178200592032) hereby declare that the report for the comprehensive project titled named
“NON PERFORMING ASSETS” is a result of our work and our indebtedness to
other work publications, references, if any have been duly acknowledged.

Enrollment No. Name Signature

178200592018 Mayur Mevada

178200592032 Tasmai Raval

Place :- Date :-
 PREFACE

Today’s modern world is progressing by bounds and leaps. In this fast changing world,
Management of business is very important phase.

The course of MBA gives great knowledge to the students. Comprehensive project report is
also a part of the MBA course. That enables the students to understand how they can apply
their theoretical knowledge in practical world. It helps us to develop our leadership skills,
communication skills and analytical skills and so on. It presents a unified picture of what
management is and how it is applied to various forms of human behaviour .

According to the study of the markets, it is being observed that there are a lot of financial
instrument available in the market and some of them are really doing well. In the near future
a proper financial planning is required to invest money in all types of financial products
because there is good potential in the market to invest.

In this project the great emphasis is given to the investor’s mind in respect to investment in
all types of financial instrument where he can maximize his wealth by investing in various
financial instruments. The needs and wants of the clients are taken into consideration.
 ACKNOWLEDGEMENT
Every successful endeavour has its share of problems and hurdles, but at the same time there
are many people who help to overcome these difficulties and thus we want to express our
heartfelt gratitude towards the people who have been of great help to achieving the purpose.
Hence our project bears the imprints of many people.

We are obliged to SHAYONA INSTITUTE OF BUSINESS MANAGEMENT. The

institute has given us an opportunity to get practical knowledge in the field of finance and
management and helping us to undergo this inspiring project. The learning during this project
has been a great experience.

Most important we would like to thank Prof. Nilrajsinh Vaghela for supporting in the
preparation of project and providing the guidance for this report. Finally we would like to
thank all those who directly or indirectly contributed to this project. This project was an
excellent opportunity to know the real corporate world and market scenario.
 EXECUTIVE SUMMARY

Theory and practicalare the two different part of the MBA Education.
Management education without practical training is always incomplete.. The
training camp provide by the Shayona Institute of BusinessManagement have
various objectives like helping the student to acquire knowledge, give an
opportunity to know the difference between theory and practical,which help US
to compete in the real world.
 INDEX

1.1 Introduction
1.2 Defination of non performing assect
1.3 Classify of bank assect
2.1 Types of NPAs
2.2 Factor of NPAs
3.1 Punjab national bank
3.2 Bank of Baroda
4.1 A Review Of literature
4.2 Research methodology
5.1 Suggestion
5.2 Conclusion
5.3 Bibliography
 Introduction

Meaning of Banking

Banking in India had originated in 18th century with The General Bank of India coming into
existence in 1786. All types of banks in India are regulated and the activities are monitored
by standard bank called the Reserve Bank of India (RBI) that stands at the apex of banking
structure. It is also called the Central Bank, as the major banking decisions are taken by RBI.
All the government owned banks are Public Sector Banks. Besides the RBI, the State Bank of
India and its associate banks and about 20 nationalized banks, all comprise of the Public
sector banks.

Section 5(1)(b) of Banking Regulation Act defines banking as ‘ the accepting, for the purpose
of lending or investment, of deposits of a money from the public, repayable on demand or
otherwise and withdrawal by cheque, draft, order or otherwise’. The banking system reflects
the economic health of the country. The strength of the economy of any country basically
hinges on the strength and efficiency of financial system, which in turn, depends on a sound
and solvent banking system. A sound banking system efficiently deploys mobilized saving in
productive sectors and a solvent banking system ensures that the bank is capable of meeting
its obligation to the depositors. The banking sector is dominant in India as it accounts for
more than half of the assets of the financial sector.
The banking industry has undergone a sea change after the first phase of economic
liberalization in 1991 and hence credit management came into picture. The primary function
of bank is to lend funds as loans to various sectors such as agriculture, industry, personal and
housing etc. In recent times the banks have become very cautious in extending loans, the
reason being mounting non-performing assets. The performance of Indian Banks have been
deteriorating due to the non-recovery of interest and installment on loan portfolio, which is
also reflected in decline in productivity, liquidity, solvency, and efficiency and erosion of
profitability.

The term Non-Performing Assets figured in the Indian banking sector after introduction of
financial sector reforms in 1992. The prudential norms on income recognition, assets
classification and provisioning thereon are implemented from the financial year 1992-93, as
per the recommendation of the committee on the Financial System. These norms have
brought in quantification and objectivity into the assessment and provisioning for NPAs.
Reserve Bank of India constantly endeavours to ensure that prescriptions in this regard are
closed to international norm.

bank is a financial institution which accepts deposits, pays interest on pre-defined rates,
clears checks, makes loans, and often acts as an intermediary in financial transactions. It also
provides other financial services to its customers.

Bank management governs various concerns associated with bank in order to maximize
profits. The concerns broadly include liquidity management, asset management, liability
management and capital management. We will discuss these areas in later chapters.

The only problem that hampers the possible financial performance of the Public Sector Banks
is the increasing results of the non-performing assets. The non-performing assets impact
drastically to the working of the banks. The efficiency of a bank is not always reflected only
by the size of its balance sheet but by the level of return on its assets. NPAs do not generate
interest income for the banks, but at the same time banks are required to make provision for
such NPAs from the current profits.
Definition of Non-Performing Asset

Non – performing assets those assets that cease to generate incomes for banks. The
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest
(SARFESI) Act, 2002 defined Non-Performing Assets (NPAs) as “ an asset or account of the
borrower, which has been classified by a bank or financial institution as substandard,
doubtful, or loss assets in accordance with the direction and guidelines relating to asset
classification issued by RBI”.

Non-performing asset is an obligation where the borrower has not paid some previously
agreed upon interest and principal amount for an extended period of time. The non-
performing asset is therefore not yielding any income to lender in the form of principal and
interest payment.

An asset becomes non- performing asset when it ceases to generate income for the bank. An
NPA is a loan or an advance where,
 The interest or installment of principal remain overdue for a period of more than
ninety days in respect of a term loan,
 An asset remains out of order in respect of an overdraft/cash credit.
 A bill remains overdue for a period of more than ninety days, in case of bill purchased
and discounted.
 An installment of the principal or the interest thereon remains overdue for one crop
season for long duration crops.
Banks should classify their assets into the following broad groups:

1. Standard Assets

A Standard Asset is a performing asset. Standard assets generate continuous income and
repayments as and when they fall due. Such assets carry a normal risk and are not NPA in the
real sense. Standard asset are not consider as NPAs but not carry more than normal risk
attached to business.

Thus in general all current loans, agricultural loans and non-agricultural loans may be treated
as standard assets. The general provision for standard asset is minimum of 25 per cent.

2. Sub-standard Assets

Sub-standard assets are all those assets (loans and advances) which re considered as non-
performing for a period of 12 months. These are assets which come under the category of
NPA for a period of less than 12 months.

The general provision of 10% of total outstanding principal plus entire outstanding interest
should be made on sub-standard assets. A NPA may be classified as sub-standard on the basis
of following criteria.

 An asset which has remained overdue for a period not exceeding three years in respect
of both agricultural and non-agricultural loans should be treated as sub-standard.
 In case of all types of term loans, where installments are overdue for a period not
exceeding three years, the entire outstanding in term loan should be treated as sub-
standard.
 An asset, where the terms and conditions of the loans regrading payment of interest
and repayment of principal have been renegotiated or rescheduled, after
commencement of production, should be called as sub-standard and should be remain
at least two years of satisfactory performance under the renegotiated terms. It means
the classification of an asset should not be upgraded merely as a result of rescheduling
unless there is satisfactory compliance with the conditions.
3. Doubtful Assets

Doubtful assets are all those assets which are considered as non-performing for more than 12
months. On these assets the banks are required to provide 100% for the unsecured portion and
additional provision of 20% to 50% advances, if doubtful for 3 and above 3 years in respect
of both agricultural and non-agricultural loans.

Rescheduling does not entitle a bank to upgrade the quality of advance automatically in the
sub-standard assets. A loan classified as doubtful has all the weakness inherent as that of a
sub-standard account. There is also a problem of weakness in the collection or liquidation of
the outstanding dues in such an account in full.

4. Loss Assets

All those assets which cannot be recovered are considered as loss assets. These assets are
identified by the Central Bank or by Auditors.

Loss assets are those where loss is identified by the bank but the amount has not been written
off wholly or partly. Such loss assets will include overdue loans in cases

 Where decrees or execution petitions have been time barred or documents are lost
which are legal proof to claim the debt,
 Where the members and their sureties are declared insolvent or have died leaving no
tangible assets,
 Where the members have left the area of operation of the society leaving no property
and their securities have also no means to pay the dues.
 Amounts which cannot be recovered in case of liquidated societies.

There are some concepts which need to understand:

Thirty days past due: 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 system, recovery climate, up gradation of technology in the banking
system, etc, it was decided to dispense with the ‘past due’ concept, with effect from March
31, 2001.

Accordingly, as from that date, a non-performing asset shall be an advance where,

 Interest and 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 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 on
respect of other accounts.

Out of order: 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
outstanding 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
accounts are treated as ‘out of order’.

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

With effect from March 31, 2004, a nonperforming asset is a loan or an advance where:
 Interest and instalment of principal remain overdue for a period of more than 90 days
in respect of a term loan,
 The accounts remains ‘out of order’ for a period of more than 90 days, in respect of an
overdraft/cash credit (OD/CC),
  The bill remains overdue for a period of more than 90 days in the case of bills
purchased and discounted,
 Interest and instalment of principal remains overdue for two harvest seasons but for a
period not exceeding two half in the case of an advance granted for agriculture
purpose.

According to the concept of Non-Performing Assets in banks are those assets,

which cease to generate income for the banks and remain irregular due to non-payment of
interest and principal amount. RBI rates reduction in NPAs is one of the major achievements
of Indian Banking sector of recent times. The accumulation of huge non-performing assets in
banks has assumed great importance. The depth of the problem of bad debts was realized in
early 1990s.
Like any other business, success of banking is assessed based on profit and
quality of the assets it possess. Even though a bank serves social objectives through its
priority sector lending, mass branch networks and employment generation, maintaining asset
quality and profitability is critical for the banks survival and growth. A major threat to
banking sector is prevalence of Non-Performing Asset. Non-Performing Assets represent bad
loan, the borrowers of which have failed to satisfy their repayment obligation.

Types of NPAs:

There are two types of NPAs Gross NPAs and Net NPAs.

Gross NPA is an advance which is considered irrecoverable, for bank has made provisions,
and which is still held in banks book of account. Gross NPAs are the sum total of all loans
assets that are classified as NPAs as per RBI guidelines as on Balance Sheet date. Gross NPA
reflects the quality of loans made by banks. It consists of all the non-standard assets like sub-
standard, doubtful, and loss assets.

It can be calculated with the help of following ratios:

Gross NPAs Ratio = Gross NPAs / Gross advances
Net NPA is obtained by deducting items like interest due but not recoverable, part payment
received and kept in suspense account from Gross NPA. Net NPAs are those type of NPAs in
which the bank has deducted the provision regarding NPAs. Net NPAs shows the actual
burden of banks. Since in India, bank balance sheets contain a huge amount of NPAs and the
process of recovery and write off of loans is very time consuming, the provisions the banks
have to make against the NPAs according to the central bank guidelines, are quite significant.
That is why the difference between gross and Net NPA is quite high. Higher ratio reflects
rising bad quality of loans.
It can calculate by:
Net NPAs Ratio = Gross NPAs – Provision / Gross advances – Provision

Factors for Rising NPAs

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

External Factors:-

 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, thereby reducing their profitability and liquidity.

 Willful defaults:

There are borrowers who are able to pay back 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.

 Natural calamities:

This is the measure factor, which is creating alarming rise in PAs 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.

 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 those finance those industries ultimately end up with a low recovery of their
loans reducing their profit and liquidity.

 Lack of demand:

Entrepreneurs in India could not foresee their product demand and starts production which
ultimately piles up their product thus making them unable to pay back the money they borrow
to operate these activities. The banks recover the amount by selling of their assets, which
covers a minimum label. Thus the banks record the non-recovered part as NPAs and have to
make provision for it.

 Change on Govt. policies:

With every new govt. banking sector gets new policies for its operation. Thus it has to cope
with the changing principles and policies for the regulation of the rising of NPAs

Internal Factors:-

 Inappropriate technology:

Due to inappropriate technology and management information system, market driven

decisions on real time basis cannot 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.

 Improper SWOT analysis:

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 creditworthiness of the borrower.

 Poor credit appraisal system:

Poor credit appraisal is another factor for the rise in PAs. 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.

 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
Marketability, Acceptability, Safety and 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.

 Absence of regular industrial visit:

The irregularities in spot visit also increases the PAs. Absence of regularly visit of bank
officials to the customer point decreases the collection of interest and principals on the loan.
The PAs due to willful defaulters can be collected by regular visits.
Punjab National Bank (PNB):

Punjab National Bank (PNB) is an Indian multinational banking and services company. It is
a state-owned corporation based in New Delhi, India. The bank was founded in 1894. As of
31 March 2017, the bank has over 80 million customers, 6,937 branches (7,000 as on 2 nd Oct,
2018) and 10681 ATMs across 764 cities.

PNB has a banking subsidiary in the UK (PNB International Bank, with seven branches in the
UK), as well as branches in Hong Kong, Kowloon, Dubai, and Kabul. It has representative
officesin Almaty (Kazakhstan), Dubai (UnitedArabEmirates), Shanghai (China), Oslo (Norw
ay), and Sydney (Australia). In Bhutan it owns 51% of Druk PNB Bank, which has five
branches. In Nepal PNB owns 20% of Everest Bank Limited, which has 50 branches. Lastly,
PNB owns 84% of JSC (SB) PNB Bank in Kazakhstan, which has four branches.

Punjab National Bank is a PSU working under Central Government of India regulated by RBI
Act, 1934 and Banking Regulation Act, 1949. Punjab National Bank was registered on 19
May, 1894 under the Indian Companies Act, with its office in Anarkali Bazaar, Lahore, in
present-day Pakistan.

PNB’s founders included several leaders of the Swadeshi movement such as Dyal Singh
Majithia and Lala Harkishen Lal, Lala Lalchand, Kali Prosanna Roy, E. C. Jessawala, Prabhu
Dayal, Bakshi Jaishi Ram, and Lala Dholan Dass. Lala Lajpat Rai was actively associated
with the management of the Bank in its early years.

Vision:
"To position PNB as the `Most Preferred Bank` for customers, the `Best Place to Work In`
for employees and a `Benchmark of Excellence` for the industry"

Mission:
"Creating Value for all its customers, Investors and Employees for being the first choice for
all stakeholders"

Products & Services of PNB:

A. Deposits:

1. Saving Account:

PNB offers specially designed savings accounts for premium customers, defence personnel,
senior citizens, minors, women etc.
Punjab National Bank savings accounts interest rate is 4% per annum if the balance in the
account is over Rs. 50 lakhs. For balances up to Rs. 50 lakhs, the rate of interest provided is
3.5% per annum.

2. Current Account:
Current Deposit Account is very convenient product for frequent banking transactions by
Individuals, Firms, HUF, Companies, institutions etc. There is no limit on number of
transactions in such accounts and are most suitable for business operations. The product is
available at all branches.

3. Fixed Deposit:

There are various Fixed Deposit schemes started by the PNB to get you higher interest on
your fixed deposits. Some of the schemes are PNB Uttam – Non Callable Deposit Scheme,
PNB Recurring Deposit Scheme (E-RD), Schemes Covered (Under E-FD) and FD Scheme
for Road Accident Victims. The premature withdrawal is allowed on all the schemes. Loan or
overdraft is available against the deposits, however subject to bank’s discretion. TDS
Certificate will be issued by the Bank for the tax deducted.

B. Loans:
1. Personal Loan:

Personal Loans have made it possible for PNB desires to shape into reality and with varied
loan options PNB offers to its consumers, it best fits their needs and affordability. After
taking a loan, the borrower has to pay EMI (Equated monthly installment) up to the end of
tenure of the loan. Given below are the following Personal Loan schemes-

 Personal Loan Scheme for Public-The scheme is launched to make the funds
available to the general public to meet all type of personal expenses.
 Personal Loan Scheme For Pensioners- The scheme is launched to provide
assistance to the public drawing pension through the PNB.

2. Education Loan:

PNB provides Education loan to meritorious and deserving students to help them pursue their
dream of higher studies. The various schemes launched by the bank include PNB Saraswati,
PNB Pratibha, PNB Udaan, PNB Kaushal, etc. The main objective of all the schemes is to
provide assistance to the students who want to do higher studies in India or abroad. The loan
amount can be used to pay the college/school/hostel fee, examination fee, library fee,
laboratory fee. The bank also pays for the purchase of books, instruments, uniforms, and
equipment’s.
3. Loan against Property:

PNB grants loan to the customers against their property to help them achieve their desires.
PNB provides loan against residential as well as commercial property. You can take the loan
for personal need or for the business need. The maximum loan availed can be the 60% of the
market value of the property.

4. Home Loan:

The main objective of providing home loan is to ensure the availability of affordable housing
to all individuals at attractive interest rates. Loan can be availed for purchase of land/already
built house/under construction house, to cover escalation costs and for renovation of the
existing house. Given below are the various schemes introduced for the various income
groups:

a. PNB Pride Housing loan for government employees: This scheme has been
introduced with the objective of ensuring that government employees buy a
house at attractive and affordable interest rates. The benefits of scheme can be
availed by permanent employees of Central/State government, Defence
personnel and Paramilitary forces.
b. PNB Housing Loan for Public: This scheme was introduced with the objective
of providing affordable housing to the EWS (Economically Weaker Section)
 and LIG (Low Income Group) of individuals. Loans can be availed for
construction, purchase of house or for making additions to the existing house.
c. PNB Gen-Next Housing Finance: This loan is specifically designed for
professionals working in the IT sector, PSU/PSB/Government employees to
ensure they can buy a home at affordable price.

5. Car Loan:

PNB offers a wide range of loans to individuals for financing cars of their choice. PNB Car
Loan is a traditional car loan provided to individuals, corporates and non-corporates who
desire to purchase a car. It takes into account various factors like the income of the person,
previous track record of loan, if any. PNB also offers PNB Pride Car Loan for Government
employees. The objective of PNB Pride Car Loan is to provide government employees easy
financing of vehicle at attractive interest rates. Permanent Employees of central government,
state government, defence personnel and paramilitary forces are eligible to avail this loan.
Processing fees and documentation charges are NIL.

C. Card Services:

1. Punjab National Bank Debit cards:

In order to provide value added services to its customers, PNB offers a range of debit cards
which are designed according to their needs. These debit cards are tailor-made to provide the
convenience of cashless transactions and you are not charged on cash withdrawals from PNB
or any other bank ATMs.

2. Punjab National Bank credit cards:

Introduction of credit cards have given a boost to cashless economy and resulted in
encouraging individuals and businessmen towards use of cashless transactions. Punjab
National Bank has three credit cards which are affiliated to VISA, these are, PNB Global
Gold Credit Card, PNB Global Classic Credit Card and PNB Global Platinum Credit Card.
All the cards offer attractive perks and reward points against expenses which are charged to
the card or transactions carried out using the card. In case of theft or loss of credit card, you
will have to immediately report to the toll free customer care number which is available
24X7.

D. Other Services:

PNB also provide locker service, mobile banking, online payment service (NEFT, RTGS)
insurance services etc.
BANK OF BARODA (BOB):

Bank of Baroda is an Indian state-owned International banking and financial services

company headquartered in Vadodara (earlier known as Baroda) in Gujarat, India. It is the
second largest bank in India, next to State Bank of India. Its headquarters is in Vadodara, it
has a corporate office in the Mumbai.

The bank was founded by the Maharaja of Baroda, Maharaja Sayajirao Gaekwad III on 20
July 1908. The bank, along with 13 other major commercial banks of India, was nationalised
on 19 July 1969, by the Government of India and has been designated as a profit-making
public sector undertaking (PSU).

In 1961, BOB merged in New Citizen Bank of India. BOB also opened a branch in Fiji. The
next year it opened a branch in Mauritius. Bank of Baroda In 1963, BOB acquired Surat
Banking Corporation in Surat, Gujarat. In 1965, BOB opened a branch in Guyana. In 1969,
the Indian government nationalised 14 top banks including BOB.

In 1980, BOB opened a branch in Bahrain and a representative office in Sydney, Australia.
That same year BOB also opened an Offshore Banking Unit (OBU) in Bahrain. Back in
India, in 1988, BOB acquired Traders Bank, which had a network of 34 branches in Delhi.
In 1965, BoB opened a branch in Guyana. That same year BoB lost its branch
in Narayanganj (East Pakistan) due to the Indo-Pakistani War of 1965. It is unclear when
BoB had opened the branch. In 1967 it suffered a second loss of branches when the
Tanzanian government nationalised BoB's three branches there at (Dar es Salaam, Mwanga,
and Moshi), and transferred their operations to the Tanzanian government-owned National
Banking Corporation.

In 1992, BOB opened an OBU in Mauritius, but closed its representative office in Sydney.
Then in 1992 BOB incorporated its operations in Kenya into a local subsidiary. In 1996,
BOB Bank entered the capital market in December with an Initial Public Offering (IPO). In
1997, BOB opened a branch in Durban.

The bank has three banking offices, two in Gaborone and one in Francistown. BOB also
opened a representative office each in Kuala Lumpur, Malaysia, and Guangdong, China.
2005 BOB built a Global Data Centre (DC) in Mumbai. 2006 BOB established an Offshore
Banking Unit (OBU) in Singapore. 2008 BOB opened a branch in Guangzhou, China
(02/08/2008) and in Kenton, Harrow United Kingdom.

Vision:
“To be most respected and preferred mid-size bank, striving to enhance stakeholder’s value
with care, concern and competence”

Mission:
“To maximize customer satisfaction through well trained staff and to strive to establish a
mutually beneficial and long business relationship”

Products & Services of BOB:

A. Deposits:

1. Saving Account:
There are no hidden costs in the savings accounts and the account operation is very simple for
common man to understand it easily.

The BOB savings account provides a zero balance facility which keeps the account operative
even in case the balance becomes zero. This facility is available only to the Central or State
Government employees, employees of public or private limited companies, agents of life and
general insurance corporations, students and those who are receiving compensation from the
Government for acquisition of their properties.

The customer can withdraw money via cheques or withdrawal forms issued by the bank.
Nomination facility is available with this BOB saving account.

There is no minimum or maximum tenure of deposit and money can be deposited anytime.

2. Current Account:
A current account is a type of deposit account for those who need to make a substantial
number of transactions on a regular basis. Current accounts are most commonly used by
professionals, entrepreneurs and large and small-scale businesses. Unlike savings accounts,
current accounts generally have no transaction limits and let the holder opt for overdraft
facilities.

3. Fixed Deposit:

Bank of Baroda offers fixed deposit schemes to individuals both for a short-term period as
well as for long terms.

a) Bank of Baroda Short Deposit:

Bank of Baroda Short Term Fixed Deposit is made for a short tenure of less than 12
months. It has the following features:
 Minimum tenure – 7 days
 Maximum tenure – less than 1 year
 Minimum deposit amount is ₹ 1000
  Senior Citizens get an additional interest rate of 0.50% for deposits of ₹
10,000/- and above
 Tax is deducted at source (TDS) on interest more than ₹ 10,000/- per year
 Overdraft or loan against deposits is allowed up to a maximum of 95%
 Nomination facility is available

b) Bank of Baroda long deposit:

i. Bank of Baroda Maha Utsav Fixed Deposit Scheme:

Bank of Baroda Maha Utsav Fixed Deposit Scheme for the Festive Season.

ii. Bank of Baroda Fast Access Deposit Scheme:

Bank of Baroda Fast Access Deposit Scheme allows a depositor to invest his
savings and also be able to liquidate funds even from the very first day. Features of
the scheme are mentioned below:
Minimum tenure – 12 months
Maximum tenure – 120 months
Minimum deposit amount is ₹ 10,000
There is no limit on the maximum deposit amount
Interest will be paid half-yearly compounded quarterly
Senior Citizens get an additional interest rate of 0.50% for deposits of ₹ 10,000/-
and above
Tax is deducted at source (TDS) on interest more than ₹ 10,000/- per year
Overdraft or loan against deposits is allowed up to a maximum of 95%
iii. Bank Of Baroda Samriddhi Deposit:
 Special Term Deposit with higher rate of interest on shorter period.
 Rate of interest payable from 7.00% to 7.65% per annum
 Minimum Deposit Amount – Rs.1000 and in multiples of Rs.1000. Rs.15.01
Lakhs for Non-Callable Deposits and further in multiple of Rs.1000/- Maximum
deposit amount is Rs.99.99 lakhs.
 Loan / Overdraft facility to be permitted up to 95%
 Pre-mature Withdrawal allowed on normal deposit (not allowed on non-callable
deposits)
B. Loan:

1. Home Loan:

Bank of Baroda is a banking and financial services company that offers a range of services,
such as consumer, private, corporate and investment banking services. The bank
offers variety of home loan options to its customers, thus enabling them to purchase a house
under their own name. Home Loans offered by Bank of Baroda can be availed at
attractive interest rates with easy documentation process and quick approval. Home
loans available at Bank of Baroda come in a lot of variants to fulfil the needs and
requirements of its customers.

Bank of Baroda Home Loan Interest Rate 2019

Interest Rate 8.75% onwards

Processing Charges 0.50% of loan amount upto Rs. 50 lakhs, above Rs. 50
Lakhs is 0.25% of loan amount + GST
Loan Tenure Upto 30 years

Loan Amount Max upto Rs. 10 crore

Security Mortgage of the Property constructed/ purchased

2. Car Loan:
Bank of Baroda car loan interest rates
Service Charges or Processing Fees
Loan tenure
Pre closure charges
From 9.65 % to 11.90 %
For loans up to Rs.15 lakh: 0.75 % of the loan
amount. Maximum up to Rs.10,000
For loans over Rs.15 lakh: 0.50 % of the loan
amount. Minimum amount Rs.10,000 and no
maximum limit)
1 year to 7 years for a Bank of Baroda car loan
for a new car
1 year to 3 years for a used car loan (not older
than 3 years)
NIL

3. Education Loan:

BOB also provide the education loan as per the requirement of person. For the purpose of
loan bank collect some information and document from the customer. And education loan
rate is 12.5%.with loan of RS. 4 lakh.
4. Loan against Property:

Loan against property is a multipurpose loan that helps an individual to take loan against his
assets. Sometimes people face cash crunch despite, having various properties at different
places. At this time, people can take Bank of Baroda LAP to come out of their cash crisis. It
is a perfect way to unlock the value of one’s property and realize one’s dreams.

Loan amount can range from Rs.1 lakh to a maximum of Rs.3 crores. However, the eligible
loan amount also depends on residential area of the applicant. And interest rate is 11.35%.

5. Personal Loan:

Bank of Baroda offers personal loan which is specifically provided to individuals who are
earning a pension. Loan amount is rs.50, 000 to 2 lakh. And interest rate is 11.60%.

C. Card Services:

1. BOB Credit Card:

Bank of Baroda offers a range of credit cards which cater to the needs of every individual.
The cards are loaded with special benefits and the card holders are also rewarded with
privileges and promised savings on every usage.

2. BOB Debit Card:

Bank of Baroda offers a wide range of debit cards that provides cashless banking
experience. Debit card holders are eligible for various deals, offers, discounts on
purchases from various merchants. All the debit cards are PIN and CHIP based to ensure
secure transactions. The bank has 6900+ ATMs across the country to provide easy cash
withdrawal facility.

D. Other Services:
BOB provide various services like Online Service (RTGS, NEFT) Locker Facility, Instant
Banking, Insurance Service, etc.
 A REVIEW OF LITERATURE

 Kumar, S. and Singh, R. (Feb 2016) analysed the non-performing assets in public
division banks and a similar study is done between priority sector lending and non-
priority sector lending. The study broke down patterns in Gross NPAs and Net NPAs
of public sector banks, to examine whether there is critical effect of priority sector
bank loaning on the total NPA of open segment banks and to discover the effect of
recovery on NPAs of the PSBs amid from 2003-04 to 2013-14. The outcome appeared
there is a declining pattern in percentage of Gross and Net NPAs of open part banks
till 2009-10 and expanded in the later years and declining pattern in pattern rate of
gross and net NPAs of open division banks till 2008-09 and expanded in the later years
over the time of the study, the noteworthy effect of Priority segment propels on
aggregate NPAs of public area banks. Likewise the outcome demonstrated the critical
effect of recovery of NPAs on aggregate NPAs of public area banks.

 Rao, M. and Patel, A. (March 2015) considered the aggregate data of public sector,
private sector and foreign banks and attempts to compare analyze and interpret the
NPA management from the year 2009 -2013. The findings reveals that the percentage
of Gross NPA to Gross advances is increasing for public banks, ratio of Loss
Advances to Gross Advances are higher in foreign banks, the Estimated Gross NPA
for 2014 is also more in public banks as compared to private and foreign banks and
from the ANOVA test, it is concluded Ratio of Gross NPA to Gross Advances for
public sector, private Sector and foreign Banks does not have significant difference
between 2009-2013.

 Chandraappa, P. (June 2014) suggested that to improve the efficiency and

profitability of banks the NPA need to be reduced and controlled. NPAs have been
fighting cyclical movement or dieses on week patient and it is an underdevelopment
feature like chronic poverty. It reflects the performance of banks. Reduced NPAs
generally gives the impression that banks have strengthened their credit appraisal
processes over the years and growth in NPAs involves the necessity of provisions,
which bring down the overall profitability of banks.
 Ray, R. (2013) observed various reasons leading to Non- Performing Assets (NPA)
and ways of managing NPA in different types of Banks. Since NPA has been growing
menace in banking, the study may help understanding this concept better and banks
may adopt remedial measures so as to maintain NPA at the minimum level. He
concluded that the occurrence of NPA affects the profitability and financial health of a
bank adversely.

 Kavitha, N. (Jan 2012) emphasized on the assessment of non-performing assets on

profitability its magnitude and impact. The study observed that there is an increase in
advances over the period of the study. However, the decline in ratio of Non-
performing Assets indicates improvement in the assets quality of SBI groups,
Nationalized Banks and Private Sector Banks.

 Selvarajan and Vadivalagan (2012) conducted a research on Cost of Non-

Performing Assets in Indian Banks. In their study they found lower level of Non-
Performing Assets helps the banks in consolidating their position and gives credence
to efficiency of the management. Pre-credit and Post-credit appraisals are to be done
by the bank more objectively. Close monitoring of borrowed accounts, site visits,
factory visits, etc. are to be done regularly. Rehabilitation of viable sick units is
essential. Consultancy and technical services must be provided to the borrower units
wherever necessary. It is necessary for the banks to adopt proper credit monitoring
mechanism, with periodical inspection of the units along with regular flow of
information from them pertaining to their financial liquidity, annual accounts, stock
reports etc., besides comparative risk analysis and compliance of terms and conditions
of sanction. Bank is expected to make sincere efforts to recover the amount from assets
which have already slipped into NPA category. If the bank could reduce the cost of
non-performing assets, cost will reduce and the profit and return on equity and assets
will increase.

 Siraj and Pillai (2012) conducted a study on Performance of Non-Performing Assets

(NPAs) of Indian Banking during Post Millennium Period. This study explored
movement of various NPA indicators, Gross NPA, Net NPA, Additions to NPA,
reductions to NPA and provisions towards NPA and compare it with Total Advances
and Total Deposits of banks. The study utilized growth rate calculating using AAG
 rate, correlation and regression study to analyze the movement and significance of
NPA indicators during the period. The effect of global financial crisis on the NPA
indicators as well is explained. The study concluded that NPA still remains a major
threat and the incremental component explained through additions to NPA pose a
great question mark on efficiency of credit risk management of banks in India. From
the analysis, it is evident that NPA still remains a major concern for banks in India.
Even though the NPA indicators showed recovery of NPA during the first half of last
decade, it remained challenging in the second half of the period. The recessionary
pressures faced by the banking sector is an important reason for the growth of NPA
indicators, it should be managed to maintain a healthy and viable banking
environment. The increased level of additions to NPA remained as an area of concern
as it indicates the real efficiency of credit risk management.

 Aravanan and Vijayakumar (2007) captured the non-performing asset scenario of a

hypothetical ban in his article about non-performing asset-unavoidable but not
unmanageable. The study included various ratios and tools and combined them to
construct a benchmark system for NPA management of banks.

 Rajeev (2008) analyzed the level of NPA and its relationship with key performance
indicators in Indian banking. Inference based on analysis revealed that rural branches
contribute more NPA in SSI sector. Regarding the generation of the NPA, the study
pointed out that inadequate funds and higher amounts of accumulated NPAs resulted
in the creation of the more NPA in SSI.

 Vallabh, et al., (2007) examined the impact of NPA on banks’ macroeconomic factors
and bank specific parameters. The other notable observation is that the banks' exposure
to priority sector lending reduces the NPA.

 Chakrabarti, R. (2006) discussed the major contemporary issues on public sector

bank performance, and the nature and management of NPAs in Indian commercial
banking. The author briefed that Indian banking sector is suffering from considerable
NPAs in their asset portfolio.
 Shiralashetu and Akash (2006) reported that the priority sector, in particular the SSI
sector contributed NPA significantly and PSBs accounts for 91.07% of the total NPA
of priority sector.

 Basu, P. (2005) recommended various banking reforms, integration of best practices

from abroad and the development of capital market to counteract the threat of financial
distress.

 Gopalakrishnan, T.V. (2004), explained that NPA pose significant blow on the
balance sheets and profitability of PSBs and high level of NPAs in bank books is a
great risk to bank’s health, stability, viability and soundness.

 Naidu, B.R. and Naidu, A.P.S. (2004) assessed the impact of NPA on the
profitability of PSBs. The authors identified the diversion of funds as the number one
reason for the NPA in the banking sector.

 Subbarao (2003) conducted a study on Is Securitisation Ordinance minimizing NPAs

or is improving the profits of PSBs by reducing NPAs. He studied about the existing
NPA realization system, role of Debt Recovery Tribunal which deals exclusively with
the bad loans of the banks and financial institutions. He found that Debt Recovery
Tribunal did not afford sufficient support to banks/FIs in their recovery effort. His
study came out with a conclusion.

 The Working Committee (1999) on NPAs considered write-off, compromise, one

time settlement for recovery of NPAs. It recommended compromise model for the
recovery of NPAs as the most effective mechanism. However both write-off and
compromise are steps to be taken with caution and due monitoring.

 Kaveri (1996) researched on Recovery from Non-Performing Advances. The banks

have to continue to deal with NPAs on a war footing, even if there are tribunals or no
tribunals. In this regard, some of the banks have set up special “recovery branches”
while other banks have continued the efforts through the existing branch outlets. The
recovery branch with necessary expertise and infrastructure is expected to affect quick
recovery. The present system of interviewing a borrower, at the time of credit
sanctioned should be made more meaningful. It can be ensured to elicit the necessary
information about the managerial competence, professional background of an
entrepreneur, planning, budgeting and control system, decision making system,
development of staff, etc.
 RESEARCH METHODOLOGY

Research is a process in which the researcher wishes to find out the end result for a given
problem and thus the solution helps in future course of action. The research has been defined
as “A careful investigation or enquiry especially through search for new facts in branch of
knowledge.”

Research Methodology, as its name suggest is the study of methods, so as to solve the
research problem. It is the science of learning the way research should be performed
systematically. It refers to the rigorous analysis of the methods applied in the stream of
research, to ensure that the conclusions drawn are valid, reliable and credible too.

 Objective of the Study:

Primary Objective:

 Main objective of this study is to compare the non-performing assets of Punjab

National Bank and Bank of Baroda.
 To study the impact of NPAs on Profitability, Liquidity and Solvency ratio.

Secondary Objective:

 To understand the factors for rising NPAs in banks.

 Scope and Period of the study:

As far as the scope of the study is concerned, the study covers A Comparative Analysis of
NPA Management between PNB and BOB which are operating in a country and this study
also cover the impact of NPA on accounting ratio such as, Profitability ratio, Liquidity ratio
and Solvency ratio of selected bank. The period of the study is five years spanning from
financial year 2014 to 2018.
 Type of Study:

Descriptive research approach is selected for this research. Descriptive research can be
explained as a statement of affairs as they are at present with the researcher having no control
over variable. Descriptive research is used extensively in social science, psychology and
educational research.

 Data Collection:
The present study based on purely secondary data that has been collected from annual reports
of both banks, website of RBI, magazines, articles published in journals, other published
documents and websites have been chosen when found relevant.

 Tools And Techniques:

NPA position is different in different banks. Basically there are many banks but here the
study is based basically on Punjab National Bank and Bank of Baroda. After collecting the
data tables were constructed and data was analysed using the following Accounting and
Statistical tools.

As per the nature of study we used:

(1) Accounting tools : Ratio analysis, Excel

(2) Statistical tools : Co-relation Analysis

Ratio analysis:

Ratio analysis is a quantitative method of gaining insight into a company's liquidity,

operational efficiency, and profitability by comparing information contained in its financial
statements.

Here, we used three ratios i.e. Profitability ratio, Liquidity ratio and Solvency ratio of
selected banks. We gathered data regarding ratios from the secondary sources and analysed it.

Co-relation Analysis:

Meaning:

Correlation analysis measures the relationship between two items, like, NPAs and Ratios of
two selected banks. The resulting value (called the "correlation coefficient") shows if changes
in one item (e.g., NPAs) will result in changes in the other item (e.g., Ratios).
When the relationship is of quantitative nature, the appropriate statistical tool for discovering
& measuring the relationship & expressing it in brief formula is known as correlation. Thus
correlation is a statistical device which helps in analysing the covariance between two or
more variables. It is one of the most common & most useful statistics.

Interpretation:

If correlation is found between two variables it means that when there is a systematic change
in one variable, there is also a systematic change in the other; the variables alter together over
a certain period of time. If there is correlation found, depending upon the numerical values
measured, this can be either positive or negative.

Positive correlation exists if one variable increases simultaneously with the other, i.e. the
high numerical values of one variable relate to the high numerical values of the other.

Negative correlation exists if one variable decreases when the other increases, i.e. the high
numerical values of one variable relate to the low numerical values of the other.

Correlation coefficient can be calculated manually using the following formula:

Where, x and y are values of variables, and n is size of the sample.

The value of correlation coefficient can be interpreted in the following manner:

 If ‘r’ is equal to 1, then there is perfect positive correlation between two values;
 If ‘r’ is equal to -1, then there is perfect negative correlation between two values;
 If ‘r’ is equal to zero, then there is no correlation between the two values.

We used Karl Pearson’s coefficient of correlation.

 Limitations of the Study:

The present study suffered from the following limitations such as:
1) Comparison is restricted to the two banks of public sector.
2) The study is based on purely secondary data and these data based on historical
accounting concept, which ignores the impact of inflation.
3) The study is limited to last five years data.
4) Time was the major constraint for the study.
 DATA ANALYSIS AND INTERPRETATION

Definition:
Analysis of data is a process of inspecting, cleaning, transforming, and modelling data with
the goal of discovering useful information, suggesting conclusions, and supporting decision
making. Data analysis has multiple facets and approaches, encompassing diverse techniques
under a variety of names, in different business, science, and social science domains.

Data pertaining to gross NPAs, net NPAs & accounting ratio was collected for 5 years. The
data so collected were analysed & have been depicted here.

 Gross NPAs and Net NPAs of PNB and BOB

Table no. 1 : Gross NPAs in amounts and % of selected bank from 2014 to 2018
Gross NPAs in Amount and % (Amt. is in Cr.)
PNB BOB
Years Amount % Amount %
2014 18880.06 5.25 11875.9 2.94
2015 25694.86 6.55 16261.45 3.72
2016 55818.33 12.9 40521.04 9.99
2017 55370.45 12.53 42718.7 10.46
2018 86620.05 18.38 56480.39 12.26
Source:https://www.moneycontrol.com/financials/punjabnationalbank/results/yearly/PNB05

Graph 1 showing gross NPAs % from 2014 to 2018

20 18.38%
18
16
14 12.9% 12.53% 12.26%
12 9.99% 10.46%
% 10
8 6.55% PNB %
5.25%
6 3.72% BOB %
4 2.94%
2
0
2014 2015 2016 2017 2018
YEARS
Interpretation:
The above table and graph shows the Gross NPAs of both the banks from the period of 2014
to 2018. The ratio of Gross NPAs of Punjab National Bank rose from 5.25% to 18.38% and
on the other hand Gross NPAs of Bank of Baroda rose from 2.94% to 12.26%. This indicates
that there was significant increase in in the Gross NPAs of both the banks. The Gross NPA of
Punjab National Bank was 5.25% in 2014 which rose to 6.55% in 2015 and 12.9% in 2016
but fell to 12.53% in 2017 and further rose to 18.38% in 2018, which was the maximum. On
the other hand the Gross NPA of Bank of Baroda was 2.94% in 2014 which rose to 3.72% in
2015, 9.99% in 2016, 10.46% in 2017 and the maximum ratio i.e. 12.26% in 2018. This
indicates that PNB has higher ratio than BOB and higher ratio reflects rising bad quality of
loans.

Table no. 2 : Net NPAs in amounts and % of selected bank from 2014 to 2018

Net NPAs in Amount and % (Amt. is in Cr.)

PNB BOB
Years Amount % Amount %
2014 9916.99 2.85 6034.76 1.52
2015 15396.5 4.06 8069.49 1.89
2016 35422.57 8.61 19406.46 5.06
2017 32702.57 7.81 18080.18 4.72
2018 48684.29 11.24 23482.65 5.49
Source:https://www.moneycontrol.com/financials/punjabnationalbank/results/yearly/PNB05

Graph 2 showing gross NPAs % from 2014 to 2018:

12 11.24%

10 8.61%
7.81%
8

6 5.06% 5.49%
% 4.72%
4.06% PNB %
4 2.85%
1.89% BOB %
1.52%
2

0
2014 2015 2016 2017 2018
YEARS
Interpretation:
The above table and graph shows the Net NPAs of both the banks from the period of 2014 to
2018. The ratio of Net NPAs of Punjab National Bank rose from 2.85% to 11.24% and on the
other hand Net NPAs of Bank of Baroda rose from 1.52% to 5.49%. This indicates that there
was significant increase in in the Net NPAs of both the banks. The Net NPA of Punjab
National Bank was 2.85% in 2014 which rose to 4.06% in 2015 and 8.61% in 2016 but fell to
7.81% in 2017 and further rose to 11.24% in 2018, which was the maximum. On the other
hand the Net NPA of Bank of Baroda was 1.52% in 2014 which rose to 1.89% in 2015 and
5.06% in 2016 but fell to 4.72% in 2017 and further rose to 5.49%, which was the maximum.
This indicates that PNB has higher ratio than BOB and higher ratio reflects rising bad quality
of loans.

 Accounting Ratios of both the banks:

1. Profitability Ratios:
Profitability ratio is used to evaluate the company’s ability to generate income as
compared to its expenses and other cost associated with the generation of income during a
particular period. This ratio represents the final result of the company. Here we consider
some of the profitability ratio like:

i. Basic EPS
ii. Net Profit Margin (%)
iii. Operating Profit Margin (%)
iv. Return on Assets (%)
v. Return on Equity / Net worth (%)

PNB

PARTICULARS Mar’14 Mar’15 Mar’16 Mar’17 Mar’18

Basic EPS 93.91 16.91 -20.82 6.45 -55.39

Net Profit Margin (%) 7.73 6.61 -8.38 2.80 -25.59

Operating Profit Margin
-2.85 -6.10 -22.88 -16.13 -44.09
(%)
Return on Assets (%) 0.60 -0.50 -0.59 0.18 -1.60
Return on Equity / Net
9.69 8.12 -11.20 3.47 -29.90
worth (%)
Source: https://www.moneycontrol.com/financials/punjabnationalbank/ratios/PNB05

BOB

PARTICULARS Mar’14 Mar’15 Mar’16 Mar’7 Mar’18

Basic EPS 107.38 15.83 -23.89 6 -10.53

Net Profit Margin (%) 11.66 7.91 -12.24 3.27 -5.57

Operating Profit Margin
0.20 -2.33 -23.59 -12.73 -20.8
(%)
Return on Assets (%) 0.68 0.47 -0.80 0.19 -0.33
Return on Equity / Net
12.61 8.53 -13.42 3.43 -5.60
worth (%)
Source: https://www.moneycontrol.com/financials/bankofbaroda/ratios/BOB

Interpretation of each ratio:

(1) Basic EPS:

 An earning per share or EPS is an important financial measure, which indicates the
profitability of a company. This ratio measures the profit available to the equity share
holder on a per share basis. The higher the earnings per share of a company, the better
are its profitability.
 EPS= (Net profit after tax - preference dividend )/Total number of outstanding shares
 EPS of both the banks drastically fall in 2015 as compare to 2014 due to highly
increase in outstanding shares and slight decrease in profit available for shareholders.
In 2016, the EPS of both banks was negative due to loss in 2016 and further it
increased in 2017 in both banks and after that in 2018 both banks incurred losses, it
result in negative EPS. But as compare to BOB, PNB incurred high losses therefore
it’s EPS more negative compare to BOB.
(2) Net Profit Margin (%):

 Net Profit Margin Ratio is the percentage of net profit relative to the revenue earned
during a period. Net Profit Margin Ratio indicates the proportion of sales revenue that
translates into net profit.
 Net Profit Margin = Net Profit/ Revenue * 100
 It is considered as one of the profitability ratio in banking industry.
 If higher the net profit margin is the more effective the bank is at converting revenue
into actual profit.
 As we can analyzed that in 2016 and 2018 the profit of both the banks fall negatively
so that the ratio came to negative for that period in both the banks. But as compare to
PNB, BOB has better net profit margin ratio.

3) Operating Profit Margin (%):

 Operating Profit Margin is profitability or performance ratio used to calculate the

percentage of profit a company produces from its operations, prior to subtracting
taxes and interest charges. It is calculated by dividing the operating profit by total
revenue, and expressing as a percentage.
 Operating expenses for a bank would mainly be more of administrative expenses. The
main expense heads would include salaries, marketing and advertising and rent,
amongst others. Operating margins are profits earned by the bank on its total interest
income.
 OPM = (Operating Profit /Revenue)*100
 Operating profit of both the bank is mostly negative.
 From the table we can say that both the banks having more operating expenses
compare to its operating profit. Therefore the ratio was negative in both the banks.
But compare to PNB, BOB has less operating expenses and has less negative ratio.

(4) Return on Assets:

 Return on assets (ROA) is a profitability ratio which indicates the net profit (net
income) generated on total assets. This ratio shows efficiency of the business entity to
utilize its assets in profitable means. Higher ROA indicates more asset efficiency.
 Returned on Assets = Net Profit/Average Total Assets
  As per above table ROA of PNB and BOB are show fluctuated trend from last 5
years. In 2018 ROA of both bank negative but as compare to PNB, BOB has less
negative ROA. The negative ROA indicates that assets of both the banks are not
efficient.

(5) Return on Equity / Net Worth (%):

 The Return on Equity ratio essentially measures the rate of return that the owners of
common stock of a company receive on their shareholdings. Return on equity
signifies how good the company is in generating returns on the investment it received
from its shareholders.
 Investors want to see a high return on equity ratio because this indicates that the
company is using its investors’ funds effectively.
 Return on Equity = (Net Income - preferred dividend) / Shareholder's equity*100
 Both the banks shows decreasing trend and even in 2016 and 2018 it was negative. It
shows that banks are not using investor’s funds effectively.

2. Liquidity Ratios:
A company’s liquidity is its ability to meet its short-term financial obligations. Liquidity
ratios attempt to measure a company's ability to pay off its short-term debt obligations.
This is done by comparing a company's most liquid assets, those that can be easily
converted to cash, with its short-term liabilities. Here we consider two of the liquid ratio:
i. Current Ratio
ii. Quick Ratio

PNB

PARTICULARS Mar '14 Mar '15 Mar '16 Mar '17 Mar '18
Current Ratio 0.02 0.02 0.03 0.03 0.05
Quick Ratio 25.19 24.23 28.09 28.98 22.72
Source: https://www.moneycontrol.com/financials/punjabnationalbank/ratios/PNB05
 BOB

PARTICULARS Mar '14 Mar '15 Mar '16 Mar '17 Mar '18
Current Ratio 0.02 0.02 0.05 0.04 0.05
Quick Ratio 24.05 20.78 18.27 19.38 21.18
Source: https://www.moneycontrol.com/financials/bankofbaroda/ratios/BOB

Interpretation of each ratio:

(1) Current ratio:

 It will measure the relationship between current assets and current liabilities. It
measures the firm’s ability to pay for all its current liabilities, due within the next one
year by selling off all their current assets.
 Current Ratio = Current Assets / Current Liability
 As a conventional rule, a current ratio of 2 to 1 or more is considered satisfactory.
 The PNB has a current ratio of 0.02:1, 0.02:1, 0.03:1, 0.03:1 and 0.05:1 respectively.
On the other hand, the BOB has a current ratio of 0.02:1, 0.02:1, 0.05:1, 0.04:1 and
0.05:1 respectively for the respective financial years from 2014 to 2018. Therefore, it
may be interpreted to the insufficiency liquid in all these five years of present study.
The ratio greater than one, means that the firm has more current assets than the
current claims against them. But, PNB has the ratio less than one for the above 5
years. Similarly, the BOB Ltd. has the ratio less than one for the above 5 years. Both
the banks have fewer current assets than current claims against them and also have
less margin of safety.

(2) Quick ratio:

 Quick Ratio is an indicator of company's short-term liquidity. It measures the ability

to use its quick assets (cash and cash equivalents, marketable securities and accounts
receivable) to pay its current liabilities.
 Quick Ratio = (Current Assets - Inventory)/ (Current Liability)
  Quick ratio of PNB reduced in 2015 but then after it increased in 2016 and 2017 and
further decreased in 2018. On the other hand, ratio of BOB has decreased till 2017
and further it increases in 2018.
 In both the banks the ratio is higher than standards i.e.1:1, which shows that both
banks keep too much cash on hand and it also shows that banks has difficulty
borrowing on short term notes. A quick ratio higher than 1:1 indicates that the
business can meet its current financial obligations with the available quick funds on
hand.

3. Solvency Ratios:
Solvency ratios, also called leverage ratios, measure a company’s ability to sustain
operations indefinitely by comparing debt levels with equity, assets, and earnings. In
other words, solvency ratios identify going concern issues and a firm’s ability to pay its
bills in the long term. Here we consider two of solvency ratio:
i. Total Debt to Equity Ratio
ii. Interest Coverage Ratio

PNB

PARTICULARS Mar '14 Mar '15 Mar '16 Mar '17 Mar '18
Total Debt to Equity 14.48 14.51 17.28 17.39 18.80
Ratio
Interest Coverage Ratio 1.17 1.13 0.82 1.06 0.41
Source: https://www.moneycontrol.com/financials/punjabnationalbank/ratios/PNB05

BOB

PARTICULARS Mar '14 Mar '15 Mar '16 Mar '17 Mar '18
Total Debt to Equity 16.83 16.39 15.11 15.69 15.07
Ratio
Interest Coverage Ratio 1.2 1.18 0.79 1.09 0.9
Source: https://www.moneycontrol.com/financials/bankofbaroda/ratios/BOB
Interpretation of each ratio:

(1) Total Debt to Equity Ratio:

 The debt to equity ratio is a financial ratio that compares a company’s total debt to
total equity. The debt to equity ratio shows the percentage of company financing that
comes from creditors and investors. A higher debt to equity ratio indicates that more
creditor financing (bank loans) is used than investor financing (shareholders).
 It shows the relation between the portion of assets financed by creditors and the
portion of assets financed by stockholders.
 It reflects the ability of shareholder equity to cover all outstanding debts in the event
of a business downturn.
 Total Debt to Equity Ratio = Total debt / Shareholder's Equity.
 From the above table we analyzed that PNB use more debt funds as compare to equity
funds and the ratio were increased over a period of time, which shows PNB using
more and more debt funds over a period of time. On the other hand, BOB using less
debt funds compare to PNB and it also reduces the usage of debt fund, thereby the
ratio falls.
(2) Interest Coverage Ratio:

 The interest coverage ratio is a financial ratio that measures a company’s ability to
make interest payments on its debt in a timely manner.
 Interest coverage ratio = EBIT / Interest Expenses
 If the computation is less than 1, it means the company isn’t making enough money to
pay its interest payments. If the coverage equation equals 1, it means the company
makes just enough money to pay its interest. If the coverage measurement is above 1,
it means that the company is making more than enough money to pay its interest
obligations with some extra earnings left over to make the principle payments.
 From the above table we observed that in year 2014 and 2015 the coverage ratio of
both the banks above 1, which means that banks have enough money to pay its
interest obligations. But after that in 2016 the ratio goes below 1, which means have
not sufficient money to pay its obligations. In 2017 ratio also come above 1 and in
2018 the ratio goes below to 1. So the ratio in both the banks fluctuates over a period
of time.
 Ratio with NPAs
 Profitability ratio with NPAs:

Returns on assets ratio is the net income (profits) generated by the bank on its total
assets. The higher the portion of income generates assets among total bank assets, the
higher would be the likelihood of the bank earning interest income. Income
generating assets of a bank form more than 90% of the bank's total assets. Income
generating assets for a bank are usually Loan assets, investments, foreign currency
assets and cash balances with other banks. In PNB financial year 2014-2018 NPAs
increase, interest earned reduces, and hence ROA declines. Hence, NPAs and ROA
have a negative relation. As compared to BOB financial year 2014-2018 NPAs
decrease, interest earned increase, and hence ROA may go up.

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.

 Liquidity ratio with NPAs:

Whereas liquidity ratios refer to the capacity of a company to handle short- term
liabilities, solvency measures the ability to pay long-term debts. In PNB financial year
2014-2018 net NPA level increases, the cash level is likely to decrease as the
borrower is unable to repay loan interest and principal. . This will likely create a
temporary shortage of cash and the bank will have to approach alternate sources to
improve liquidity. This ratio will have a negative relationship with NPA. As
compared with BOB financial year 2014-2018 the NPA level is decrease. As NPAs
reduce, liquidity improves.

 Solvency ratio with NPAs:

In BOB the NPA level is decrease and solvency ratio is high compared to PNB. So it
is clear that BOB more likely to meet their financial obligations. As PNB has not
good solvency ratio so it raises debt or equity to meet the capital requirements. Hence,
their solvency ratios are adversely affected when NPAs are high.

For the purpose of calculating solvency, net income includes all cash and holdings
that can be easily liquidated. Overall, banks with higher solvency ratios are viewed as
more likely to meet their financial obligations, whereas those with lower scores are
seen as posing a greater risk to banks and creditors. Although a good solvency ratio
varies based on the industry in question, a bank with a ratio at or above 20% is
generally considered healthy.

A bank's level of solvency would mean that a bank would not be able to repay its
depositors in case NPAs were high. Banks raise debt or equity to meet the capital
requirements. Hence, their solvency ratios are adversely affected when NPAs are
high.
 Correlation Co-efficient
Table:1 Correlation Co-efficient

Correlation Co-efficient

RATIOS PNB BOB

Profitability Ratios
EPS -0.9162289 -0.79796
Net Profit Margin (%) -0.901546 -0.85727
Operating Profit Margin (%) -0.9544756 -0.953595
Return on Assets (%) -0.7614153 -0.842827
Return on Equity / Net worth (%) -0.9080681 -0.853109
Liquidity Ratios
Current Ratio 0.93491793 0.973511
Quick ratio -0.0062037 -0.623971
Solvency Ratios
Total Debt to Equity ratio 0.98686099 -0.970342
Interest Coverage Ratio -0.8984809 -0.833139

Interpretation of result:

Correlation coefficient was calculated by using excel option.

Since we have calculated the correlation between Net NPAs and ratios of the selected banks
and as seen the correlation is negative in mostly all ratio expect certain ratio. It means that as
net NPAs increases, the ratio decreases and vice-versa.

It is clear that as net NPAs increases in bank, the profitability adversely affected. Therefore,
all profitability ratios negatively correlated with the NPAs of selected banks. An increase in
NPAs result in decreasing the net profit of banks as high NPAs required more provision
which cease the income of banks.
NPAs and current ratio positively correlated. It means that increase in NPAs result in increase
in current ratio. However the current ratio of both the banks not fluctuates continuously. So
that we cannot say that only NPAs affects the current ratio but also other factors also affects.
We analysed that NPAs and quick ratio not related or say partially correlated because
correlation co-efficient is -0.0062 and -0.6239 of PNB and BOB respectively.

In general the solvency ratio and NPAs had negative relationship. NPAs and debt-equity ratio
has positively correlated in case of PNB and it negatively correlated in case of BOB. The
reason of positive correlation in PNB is that as NPAs increases the total debt of bank also
increases which result in increased the ratio. On the other hand in BOB increases in NPAs is
less than the increase in NPAs of PNB, so that the debt equity ratio would decline and the
correlation came negative.

NPAs and interest coverage ratio has negatively correlated. As increase in level of NPAs
bank tend to lower the interest on deposits on one hand and likely to levy higher interest rate
on advances this result in higher interest expenses and thereby decline the ratio.

T-test:
 Taking simple linear regression method
 Taking 3 ratio i.e EPS, Current ratio and Total debt to equity
H0: There is no significant relationship between NPAs and ratios.
H1: There is significant relationship between NPAs and ratios.
Particular PNB t-stat BOB t-stat
EPS 4.02 4.40
Current ratio 4.04 4.43
Total debt to equity 4.03 4.42

t- Critical value: 2.77

The test statistic so calculated in each ratio comes out to be more than the critical value for
the 2 tailed t-test at significance level 5%. Hence we reject the null hypothesis and conclude
that there is significant relationship between NPAs and each selected ratio.
 SUGGESTIONS
 Banks should have its own independent credit rating agency which should evaluate the
financial capacity of the borrower before that credit facility.

 Special accounts should be made of the clients where monthly loan concentration report
should be made.

 There should be proper monitoring of the restructuring accounts because there is every
possibility of the loan slipping into NPAs category.

 Strict measure has to be taken while issuing or sanctioning the loan. The measure can
include verification of sanctioning the loan, job and salary slips, and verification of
securities.

 When all possible attempt for recovery is failed then only option is to proceed with legal
action along with speed otherwise it would be costly.

 It is also wise for the bank to carry out special investigative audit of all financial and
business transaction and books of accounts of the borrower company when there is
possibility of the diversion of the funds and mismanagement.

 Independent settlement procedure should be more strict and faster and the decision made
by the settlement committee should be binding both borrower and lenders and any one of
them failing to follow the decision of the statements committee should be punished
severely.

 The bank should come out with new innovative methods to recover NPAs and should
motivate customers to pay their dues in time.

 Wilful default of bank loans should be made a criminal offence.

 Identifying reasons for turning of each accounts of branch into NPAs is the most
important factor for upgrading the asset quality because that would help to initiate
suitable steps to upgrade the accounts.

 The bank must focus on recovery from those borrowers who have the capacity to repay
but are not repaying initiation of coercive action a few such borrowers may help.

 The recovery machine of the bank has to be in streamlined targets should have fixed
offence supervisors not only for recovery in general but also in terms of upgrading
numbers of existing NPAs

 The banks can take steps to improve their solvency ratios and boost profitability in the
long term. Along with selling assets to reduce overall debt, a bank may opt to reorganize
its banks structure, increase owner equity or reinvest money and assets in the other place.
And of course, struggling banks should try to avoid taking on new debts until their
solvency ratios improve. Finally, banks should also strive to improve sales, as this will
ultimately boost both profitability and solvency.
 CONCLUSION

The issue of Non-Performing Assets (NPAs) has been an area of concern for all economies &
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.

The problem of NPAs was a live danger for the banks, because it destroys the healthy
financial condition of the banks. If the situation remains same and the profitability was
affected as it was being affected now, the people would not keep faith on the banks any more.
So, the problem of NPAs should be dealt in such a manner that would not ruin the financial
conditions and affect the image of the bank. The RBI and the Government of India had taken
necessary steps to reduce NPAs.

The RBI had given target to these to bring down their NPAs rather than only increasing the
profits and total business of the bank. They affect the profit of bank and also the financial
health of bank. If it is not controlled or managed properly then it affects the bank‘s growth.

It is concluded that the gross and net NPAs of both the banks have increased over a time. It
should affect majorly profitability of the banks. The ratios of both the banks were negative
but BOB has less negative ratio than PNB. So it is concluded that the management of NPAs
is better in BOB than PNB. Hence, both the banks required proper management of NPAs.
 BIBLOGRAPHY

 https://en.wikipedia.org/wiki/Bank_of_Baroda
 :https://www.moneycontrol.com/financials/punjabnationalbank/results/yearly/PNB05
 https://www.moneycontrol.com/financials/punjabnationalbank/ratios/PNB05
 https://www.monecontrol.com/financials/bankofbaroda/ratios/BOB