ANALYSIS & INTERPRETATION

a. ANALYSIS OF TREND AND ASSET QUALITY OF GROSS ADVANCES AND GROSS NON PERFORMING ASSETS: GROSS ADVANCES AND GROSS NPAS OF PUBLIC SECTOR BANKS

Years

Gross Advances(cr.) Amount(cr.)

Gross NPAs Percent to Gross Advances 12.4 11.1 9.4 7.8 5.5 3.6 2.7 2.2 2

Percent to Total Assets 5.3 4.9 4.2 3.5 2.7 2.1 1.6 1.3 1.2

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

4.42,134 5,09,368 5,77,813 6,61,975 8,77,825 11,34,724 14,64,493 18,19,074 22,83,473

54672 56473 54090 51537 48,399 41,358 38,968 40,595 45,156

The following table helps in examining trends of gross advances, gross NPAs, ratio of gross NPAs to gross advances and ratio of gross NPAs to total assets. It is clearly viewed from the above table that the gross advances of the public sector banks have shown a rising trend since 2000-01. Gross advances of public sector banks have increased from merely Rs 4,42,134 crore in 2000-01 to Rs 22,83,473 crore in 2008-09 i.e. in a 9 year span of time the increase in gross advances is 416.47 percent. The gross NPAs shows a mix trend over a study period of 9 years i.e. the amount of gross NPAs shows both an increasing as well as decreasing trend. Public sector banks shows a decreasing pattern till 2006-07 and in year 2001-02 and in the last two years there was an increase in gross NPAs. There is a decrease of over 21 percent of gross NPA in a 9 year time period which is a great sign for any bank. If we compare the ratios of gross NPAs to gross advances and gross NPAs to total assets we can see that the ratio is continuously decreasing over a period which means the gross NPAs is continuously decreasing relatively to total assets and gross advances which is a much much positive sign for the public sector banks. This also shows the improvement in efficiency of banks and the improvement in the quality of the asset. As number of gross NPAs decreases relatively, this shows that the profitability is continuously increasing and improving every year by overcoming the amount of gross NPAs.

GROSS ADVANCES AND GROSS NPAS OF PRIVATE SECTOR BANKS

Years 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

Gross Advances(cr.) Amount(cr.) 71237 120958 146047 177419 197832 317690 420745 525845 585065 5963 11662 11782 10381 8782 7811 9256 12983 16983

Gross NPAs Percent to Gross Advances 8.4 9.6 8.1 5.9 4.4 2.5 2.2 2.5 2.9

Percent to Total Assets 3.4 4.4 4 2.8 2.1 1.4 1.2 1.4 1.7

Similarly, we can also visualize the trend of private sector banks by using gross advances, gross NPAs and ratios of gross NPAs w.r.t. to gross advances and total assets. We can clearly see from the above table that the gross advances are increasing continuously and there is an increase of over 721 percent as compared to 2000-01 and 2008-09. This clearly shows that apart from the presence of public sector banks, private sector banks also get a great opportunity to prove them. The amount of gross NPAs shows a mix kind of trend over a period- as till 2002-03 and from 2005-06 to 2008-09 there is a continuous increase in gross NPA amount while there is a decrease in it from a period ranging from 2003-04 to 2005-06. NPA ratios related to gross NPA also shows a mix trend over a period. But if we see the last three years data, we can clearly see that there is an increase in gross NPA to total assets and gross NPA to gross advances which means that the asset quality is diminishing instead of improving. Thus, if we compare both public and private sector banks we can say that public sector banks are better than private sector banks as the efficiency and asset quality of public sector banks had shown a continuous improvement if compare relatively to private sector banks.

b. ANALYSIS OF TREND AND ASSET QUALITY OF NET ADVANCES ANNET NON PERFORMING ASSETS: NET ADVANCES AND NET NPAS OF PUBLIC SECTOR BANKS

Net Advances(cr.) Years 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 415207 480681 549351 631383 8,48,912 11,06,288 14,40,146 17,97,504 22,60,156 Amount(cr.) 27977 27958 24877 19335 16,904 14,566 15,145 17,836 21,033

Net NPAs Percent to Net Advances 6.7 5.8 4.5 3.1 2.1 1.3 1.1 1 0.9

Percent to Total Assets 2.7 2.4 1.9 1.3 1 0.7 0.6 0.6 0.6

After the analysis of gross advances and gross NPA, the study investigates the net advances, net NPAs, ratio of net NPAs to net advances and net NPAs to total assets. First of all if we analyze the public sector banks we can see that the net advances are increasing continuously every year and there is an increase of over 444 percent (i.e. from Rs 4,15,207 crore to Rs 22,60,156 crore) if we take year 2000-01 and 2008-09 into consideration. Similarly, the net NPAs shows a mix trend over a period. But, it is observed that despite increase in net non performing assets (NPAs) in absolute terms during the year, asset quality of public sector banks improved in the past few years as reflected in the decline in these two ratios i.e. net NPAs as percentage of net advances, and net NPAs as percentage of total assets. Both of these ratios shows a continuously decreasing trend which is a sign of improvement in the efficiency, profitability and asset quality.

NET ADVANCES AND NET NPAS OF PRIVATE SECTOR BANKS

Years

Net Advances(cr.) Amount(cr.)

Net NPAs Percent to Net Advances 5.4 5.7 2.8 2.4 2.2 1 1 1.1 1.3

Percent to Total Assets 2.3 2.5 2.3 1.3 1 0.6 0.5 0.6 0.7

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

68059 116473 138951 170754 191397 312962 414752 518403 575336

3700 6676 3963 4128 4212 3171 4028 5607 7418

If we use the same criteria for private sector banks, we can see despite of continuous increase in net advances in all years the net NPA ratio w.r.t to net advances and total assets increases in last 2-3 years that is in 2007-08 and 2008-09 while all other years shows a decreasing trend. That means only in last 2-3 years the efficiency and asset quality of private sector banks is questionable otherwise in all other previous years the banks hade shown a continuous improvement. As, if we see overall performance of the private sector banks we can say that there is a wide improvement as the net NPA ratios changes form 5.4 to 1.3 and from 2.3 to 0.7. Thus, after comparing both the gross and net NPA ratio, if we compare relatively both of these public and private sector banks we can say public sector banks are much more efficient than private sector banks.

ANALYSIS OF NPAs ON THE BASIS OF CLASSIFICATION OF LOAN Loan assets of banks can be classified into four categories i.e. standard assets, sub-standard assets, doubtful assets, and loss assets. Standard assets: These are loans which do not have any problem are less risk. Substandard assets: These are assets which come under the category of NPA for a period of less then 12 months. Doubtful assets: These are NPA exceeding 12 months Loss assets: These are NPA which are identified as unreliable by internal inspector of bank or auditors or by RBI.
CLASSIFICATION OF LOAN ASSETS OF NPAS OF PUBLIC SECTOR BANKS Classification of Loan Assets (Amount in Rs. Crore) Sub-standard Years Standard Assets Doubtful Assets Loss Assets Assets

2001 2002 2003 2004 2005 2006 2007 2008 2009

Amount %age* Amount %age* Amount %age* Amount %age* 387360 87.6 14745 3.3 33485 7.6 6544 1.5 452862 88.9 15788 3.1 33658 6.6 7061 1.4 523724 90.6 14909 2.6 32340 5.6 6840 1.2 610435 92.2 16909 2.6 28756 4.3 5876 0.9 824253 94.6 10838 1.2 29988 3.4 5771 0.7 1092607 96.3 11453 1.0 25028 2.2 5636 0.5 1335175 97.2 14147 1 19945 1.5 4510 0.3 1656585 97.7 16870 1 19167 1.1 3712 0.2 2,237,556 98.0 20630 0.9 21019 0.9 4296 0.2

The above table helps in the analysis of loan assets. The substandard assets have shown a decline to 0.9 percent in 2009 from 3.3percent in 2001. Similarly, the doubtful assets have declined to 0.5 percent from a high 7.6 percent in 2001 while the loss assets have declined to 0.2 percent from 1.5 percent during the same period. The decline in various categories of loan assets indicates recovering health of public sector banks. All the three categories of NPAs that are substandard assets, doubtful assets and loss assets as percentage of gross non-performing assets have

registered a decline over the period of study. Thus, we can say that the financial health or the quality of assets of public sector banks is being continuously improving every year.

CLASSIFICATION OF LOAN ASSETS OF NPAS OF PRIVATE SECTOR BANKS Classification of Loan Assets (Amount in Rs. Crore) Sub-standard Years Standard Assets Assets Doubtful Assets Loss Assets Amount %age* Amount %age* Amount %age* Amount %age*

2001 2002 2003 2004 2005 2006 2007 2008 2009

65071 109216 131620 167076 216448 309051 382628 459369 561546

91.5 90.3 90.8 94.2 96.1 97.6 97.6 97.3 97.1

2585 4738 3703 3127 2213 2424 4378 7280 10553

3.6 3.9 2.6 1.8 1.0 0.8 1.1 1.5 1.8

3069 6539 8512 6391 5578 4348 3923 4452 4975

4.3 5.4 5.9 3.6 2.5 1.4 1 0.9 0.9

424 390 1118 825 900 939 941 1244 1324

0.6 0.3 0.8 0.5 0.4 0.3 0.2 0.3 0.2

If we analyze the loan assets of private sector banks, we can say that if we compare the first year and last year for sub standard assets we can say that there is a decrease in it of health is improving but overall analysis for sub-standard assets shows that after year 2006 there is a continuous increase in the amount of sub-standard assets i.e. from 1percent to 1.8 percent. But, the doubtful assets have declined from 5.9percent in 2003 to 0.9percent in 2009. The loss assets also have shown a decreasing trend from year 2003. Thus, we can say that except the substandard assets category the other two categories of non performing assets have improved over the period of study.

SECTOR-WISE CLASSIFICATION OF NPAS OF PUBLIC SECTOR BANKS Sector-wise the NPAs have been classified into three sectors i.e. priority sector (agriculture, small scale industries and other industries), public sector and non-priority sector. SECTOR-WISE CLASSIFICATION OF NPAS OF PUBLIC SECTOR Total Non-Priority Priority Sector Public Sector Sector Amount %age* Amount %age* Amount %age* Amount 284 34.8 17.82 2.35 476 62.85 758 25139 44.5 1116 1.97 30251 53.54 56506 24938 47.23 1087 2.06 26781 50.72 52807 16705 47.74 390 1.12 17895 51.14 34990 23397 49.05 450 0.94 23849 50 47696 22374 54.07 341 0.82 18664 45.11 41378 22954 59.46 490 1.27 15158 39.27 38602 25287 63.62 299 0.75 14163 35.63 39749 24318 55.2 474 1.1 19251 43.7 19251 30848 53.8 524 0.9 25929 45.3 57301

Years 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

SECTOR-WISE CLASSIFICATION OF NPAS OF PRIVATE SECTOR BANKS SECTOR-WISE CLASSIFICATION OF NPAS OF PRIVATE SECTOR Total Priority Sector Public Sector Non-Priority Sector Amount %age* Amount %age* Amount %age* Amount 1835 28.62 123 1.92 4452 69.45 6410 2546 21.82 31.18 0.27 9090 77.91 11667 2445 20.61 94.51 0.80 9327 78.6 11866 1802 40.94 8.32 0.19 2591 58.87 4401 2188 24.87 42 0.48 6569 74.65 8800 2284 29.17 4 0.05 5541 70.78 7829 2884 31.22 3 0.03 6353 68.75 9239 3419 26.34 0 9558 73.66 12976 3640 21.6 75 0.4 13172 78 16887 4792 27.6 12592 72.4 17384

Years 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010