IRJMSH Vol 6 Issue 11 [Year 2015] ISSN 2277 – 9809 (0nline) 2348–9359 (Print)

A STUDY ON NON-PERFORMING ASSETS OF STATE BANK OF INDIA

Ms. Deepti*
*Research Scholar,
University School of Management,
Kurukshetra University, Kurukshetra – 136119
Email – kuhardeepti90@gmail.com
ABSTRACT

"Non Performing Assets of Public Sector Banks in India by Manish Kapoor presented
in International Journal of Innovations in Engineering and Technology (IJIET)” stated that
“The three letters Strike terror in banking sector and business circle today”. NPA is short form of
“Non Performing Asset”. The economic future of the country is wholly dependent on banking
sector. The problem of NPA show signs of "persistent bane of hitherto developmental
policies". "New stratagem is required to attempt effacing of the NPA menace". The
significance of the paper is expected to be an immense use to fulfill consumer needs and facing
competition with other banks. This study provides the information related to solve NPA problem.
The study uses the annual reports of SBI for the period of year 2007-2008 to 2013-2014. The
motive of present study is to assess the non performing assets of SBI and its impact on
profitability & to see the relationship between Total Advances, Net Profits, NET & GROSS
NPA. The study also includes advances and NPA of SBI groups by Priority & Non Priority
sectors. The study has been analyzed by using tables and coefficient of correlation. The major
reason of increased NPA is banks focal point on quantitative aspect of achieving targets and less
attention being paid towards qualitative aspect of loan and credit disbursement of money &
mismanagement of funds.
INTRODUCTION
NPA is short form of “Non Performing Asset”. We know the built up of NPA has been the major
factor in destroying the profitability of the Public sector Banks in India, the Narasimham
Committee (II) underscored the need to reduce the average level of NPAs of all banks and
recommended prudential norms on income recognition, asset classification & provisioning. 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 [1]. The recovery
of loan has always been problem for banks and financial institution [1]. To come out of these
first we need to think is it possible to avoid NPA, no cannot be then left is to look after the factor
responsible for it and managing those factors [3]. With a view to moving towards international
best practices and to ensure greater transparency, it has been decided to adopt the „90 days’
overdue’ norm for identification of NPAs, from the year ending March 31, 2004 [3].

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IRJMSH Vol 6 Issue 11 [Year 2015] ISSN 2277 – 9809 (0nline) 2348–9359 (Print)

NON-PERFORMING ASSET- CONCEPT

NPA: An asset is classified as non-performing asset (NPA‟s) if dues in the form of principal and
interest are not paid by the borrower for a period of 90 days [4] and ceases to generate income.
Accordingly, with effect from March 31, 2004, a non-performing asset (NPA) shall be a loan or
an advance where [1];
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 the case of bills purchased
and discounted.
iv. Interest and/or installment of principal remains overdue for two harvest seasons. But for a
period not exceeding two half years in the case of an advance granted for agricultural
purposes.

REVIEW OF LITERATURE
Reddy (2002) studied the comparative study of NPA in India in the global context. He revealed
the importance of sound understanding of macroeconomic variables and strong legal and
legislative framework. He suggested that foreign experiences must be utilized along with a clear
understanding of the local conditions to create a tailor made solution.

He (2002) discussed the key design features that would be important for ARC‟s (Asset
Reconstruction Companies) to play an effective role in resolving NPAs. This was found that
ARC has a potential to contribute to resolution of NPA as it provides mechanism of pooling
together scare skills in managing and disposing of impaired assets.

Pradhan (2012) in their study of management of NPA in commercial banks in Odisha found that
the high level of NPA forced the banks to charge higher PLR& PLR interest rates. The major
hurdle in efficient functioning of banks is sluggish legal system of our country.

Narula and Singla (2013) say that NPA is a virus affecting Banking sector. It affects liquidity
and profitability, in addition posing threat on quality of asset and survival of banks. The study
used annual reports of PNB for period of six years from 2006-07 to 2011-12 and analyzed by
using tables and coefficient of correlatio n. The study concluded that there is positive relation
between Net Profits and NPA of PNB. It is because of mismanagement on the side of bank.

Ganesan and Santhanakrishan (2013) says that sound financial position of banks depends
upon the recovery of loans or its level of NPAs. The study emphasized on evaluating the NPA of
SBI since 2002. The analytical exercise was carried out by secondary data collected from SBI
Annual Reports and RBI Bulletins and Primary data in form of pre-structured questionnaire. The

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IRJMSH Vol 6 Issue 11 [Year 2015] ISSN 2277 – 9809 (0nline) 2348–9359 (Print)

study resulted in importance of credit management and suggested that Government of India
should also take some steps to reduce NPA to considerable level.

Shalini (2013) study the effect of different variables on non performing farmers and difficulties
faced by Indian farmers in paying back borrowed amount with regular payment of interest. Data
collected from both methods along with Telephonic Interview method and used Chi-Square
Analysis Test. The paper concluded that bankers should focus on post sanction inspection and
farmers should beware regarding effects and consequences of Defaulting.

Barge (2102) reported that “NPA as an alarming threat sending distressing signals on
sustainability and tolerability of the affected banks. A high level of NPAs suggests high
probability of a large no. of credit defaults that affect the profitability and net worth of banks and
also erodes the value of the asset.”

Das and Dutta (2014) studied the NPA of Public Sector Banks in India using ANNOVA and
SPSS software. Secondary Data collected from RBI website of 6 years (2008-13). It was found
that there is no significant difference.

Gaha and Neha (2014) reported that “NPA of Public Sector Banks is increasing in Non priority
sector, so banks should adopt proper procedure to reduce its NPA and PSBs should try to
develop customized products for meeting consumer needs and facing competition from other
banks.”

Satpal (2014) reported that “NPA as an alarming threat sending distressing signals on
sustainability and tolerability of the affected banks. A high level of NPAs suggests high
probability of a large no. of credit defaults that affect the profitability and net worth of banks and
also erodes the value of the asset.”

Jain (2014) highlighted the defaulting companies and threats emerging out of it. The paper
reported that “Stressed loans in Banking system in India make up for 5.5 lac crore gaping hole by
some estimates and poses a grave risk to economy and financial sector.” Since, Govt. and banks
should take steps to revive loans.

Roy (2014) studied the trends in NPA in Indian Banks and its determinants. The paper
emphasized on evaluating the impact of selected macroeconomic variables of NPA. The study
concluded that GDP growth change in Exchange Rate, global volatility have major effects on
NPA level of Indian Banking sector.

Rao and Patel (2015) emphasized to analyze and interpret the NPA management from year
2009-13 of Public Sector, Private Sector and Foreign Banks. The study used NPA related ratios,
Least Square Method and ANOVA test. The paper revealed that ratio of Gross NPA to Gross
Advances for public, private and foreign banks do not have significant difference between 2009-

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13 and estimated Gross NPA for 2014 is more in public banks as compared to private and
foreign banks.

Barot (2015) emphasized on measuring the relationship between net NPA with net advances of
selected PSBs of India. The study has analyzed data of eight financial years i.e. 2006-07 to 2013-
14. The paper concluded that there is significant difference between performances of Net NPA to
Net Advance Ratio in banking sector.

Pharate (2015) says that reduction in NPA of private banks led to an improvement in their
productivity, efficiency and profitability during 2011-12, 2012-13 and 2013-14. The paper
revealed that percentage share of priority sector in Total NPAs of all Bank groups (except of
Private Sector Banks) went up during the reference period.

SBI TOTAL ADVANCES COMPARED WITH NET PROFIT, GROSS NPA & NET NPA

Year Net Profit(in Crores) Net NPA Gross NPA

2011 7370.69 12346.89 25326.29

2012 11713.34 15818.85 39676.46

2013 14105.32 21956.48 51189.39
2014 10891.51 31096.07 61605.35
2015 13101.89 27590.58 56725.34

Correlation- Correlation is a numerical measure used to determine the degree of relationship

between variables.

Reason of using Correlation- By using this, we can determine whether there is any relation
between write off amount and net NPA of SBI or not.
dx = X-
A dy=Y-A
Net dx2 dy2
Year A= Net NPA(Y) A=21956.48 dxdy
Profit(X)
13101

2015 7370.69 -5731.2 32846653.44 12346.89 -9609.59 92344219.9681 55074482.208

-
2014 1713.34 1928071.1025 15818.85 -6137.63 37670502.0169 8522406.1365
1388.55
2013 14105.32 1003.43 1006871.7649 21956.48 0 0 -
2012 10891.51 9579.62 91481730.7444 31096.07 9139.59 83532105.3681 87553799.1558
2011 13101.89 0 0 27590.58 5634.1 3174319549.21 -
€dx= €dy=
€X= Σdx2 €Y= Σdy2=
3463.3 -973.53 dxdy=1151150687.503
57182.75 =127263327.5 108808.87 6469841705.8

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IRJMSH Vol 6 Issue 11 [Year 2015] ISSN 2277 – 9809 (0nline) 2348–9359 (Print)

r = NΣdxdy-ΣdxΣdy / √ (Σdx2- (Σdx) 2) * √ (Σdy2- (Σdy) 2)

= 5*(51150687.5003) – {3463.3*(-973.53)} / √5*127263327.0558 – (34633)*(34633)

√5*6469841705.805 – (-973.53)*(-973.53)

=759125063.9505/ √563128053.721 * √32348260768.364

=7591250639505/237303*179856.2

=759125063.9/42680421165

=0.17

r =0.17

As we can see that r is correlated coefficient is equal to 0.17. It means that there is a positive
relationship between Net Profit and NPA of SBI. It simply means that as profits increases, NPA
also increases. It is because of mismanagement on side of SBI.NPA is directly related to Total
Advances given by bank and banks main source of income is interest earned by banks.

IMPACT OF NPA

The table is comparing Total Advances with Net Profit, Gross NPA and Net NPA of SBI. With
help of these tables we can get knowledge about shaking performance of SBI. We should see one
side total advances given by SBI and write off amount are increasingly since 2012 which shows
that bank is performing very well. But Gross NPA and Net NPA are also increasing which shows
performance is declining because of mismanagement of bank.

CONCLUSION

Banking industry has undergone a major change after the first phase of economic liberalization;
hence the importance credit management has emerged. In recent time banks are very cautious in
extending loan, because of mounting NPA. This article highlights the performance of NPA of
SBI and its impact on society. This also highlights the reasons for an assets becoming NPA and
remedial measures to be taken. Due to various steps taken by the Government of India NPA
levels were reduced to considerable level. Due to various steps taken by the Government of India
NPA levels were reduced.

REFERENCES

[1] Barge, A. (2012, March). NPA Management in Banks : An Indian Perspective. Innovation in Banking
and Finance, 1, 88-91. Retrieved from www.ibmrd.org
[2] Barot, G. C. (2015, March). Net Non-Performing Assets to Advance Ratios‟ Performance of Public
Sector Banks in India. MERC Global’s International Journal of Social Science & Management, 2(2), 81-
87. Retrieved from www.mercglobal.org/ijssm

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[3] Das, S., & Dutta, A. (2014, November). A Study on NPA of Public Sector Banks in I ndia. OSR
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[6] Jain, N. (2014, September). Non-Performing Assets (NPA):A reality of banking sector. International
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[8] Pharate, P. R. (n.d.). NPA Management By Public and Private Sector Banks In India. Tactful
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[10] Reddy, P. k. (2002). A comparative study of Non Performing Assets in India In the Global context -
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