International Journal of Accounting and Financial Management Research (IJAFMR) ISSN 2249-6882 Vol.

3, Issue 1, Mar 2013, 193-200 TJPRC Pvt. Ltd.

A CASE STUDY OF RECOVERY POSITION OF NON PERFORMING ASSETS OF PUNJAB NATIONAL BANK OF INDIA AND HDFC BANK LIMITED
REKHA GUPTA1 & NITIN S. SIKARWAR2
1

Sr. Assistant Professor, Department of Management, Haryana College of Technology and Management, Kaithal, Haryana, India
2

Associate Professor, Department of Management, Haryana College of Technology and Management, Kaithal, Haryana, India

ABSTRACT
Banking system plays a vital role in the economic system of a country by mobilizing the nations savings and directing them into high investment priorities for better utilization of available resources. Schumpeter, the first modern economist considered banks to be the most important of all the financial intermediaries in the financial system of a country. But in recent times the banks have become very cautious in providing loans, the reason behind is the non performing assets. Non Performing Assets are defined as the loans which have ceased to generate any income for a bank whether in the form of interest or principal amount. To bring down the level of NPAs, a number of strategies have been initiated in the past and are being initiated at present by the Government and the banks. In view of the vital role of non performing assets on the profitability, Punjab National Bank and HDFC Bank have been selected for the purpose of present research because both are the giant banks in public and private sector, so a comparative study is made. In the present study, the researcher proposes to make an analytical study in respect of Non Performing Assets and their recovery management, so that it may be useful at all banking levels regarding the efficient utilization of resources which may lead to better working of the banking sector.

KEYWORDS: Bank, Non Performing Assets, Recovery

INTRODUCTION
Banking system plays a vital role in the economic system of a country by mobilizing the nations savings and directing them into high investment priorities for better utilization of available resources. 1Kapila Uma in her work Indian Economy (2008) has stated that the banking system has capacity to add to the total supply of money by means of credit creation. It is because of an ability to manipulate credit that banks are used extensively as a tool of monetary policy. But in recent times the banks have become very cautious in providing loans, the reason behind is the non performing assets. Non
1

Kapila Uma Indian Economy, performance and policies Academic Foundation New Delhi ed. Eighth, 2008-09. Bidani, S.N., Managing Non Performing Assets in Banks, Vision Books Pvt. Ltd., New Delhi, Bhole, L. M., Financial Institution & Markets, Tata Mcgraw Hill Publications Ltd., New Delhi, 2000.

2 3

2003.

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Performing Assets are defined as the loans which have ceased to generate any income for a bank whether in the form of interest or principal amount. 2Bidani, S.N. (2003) has found that the main causes of accumulation of NPAs in banks are diversion of working capital funds by promoters for taking up new projects, inadequate project planning, Non performing assets adversely affect the profitability of the banks. 3Bhole L.M, (2005) in his book Financial Institutions and Markets discussed about the concept of liquidity and profitability with special reference to banks. He described that it is necessary for the efficient working of the banks to maintain balance between liquidity and profitability. In view of the vital role of non performing assets and their recovery, Punjab National Bank and HDFC Bank have been selected for the purpose of present research because both are the giant banks in public and private sector, so a comparative study is made. In the present study, the researcher proposes to make an analytical study in respect of Non Performing Assets, so that it may be useful at all banking levels regarding the efficient utilization of resources which may lead to better working of the banking sector.

OBJECTIVES OF THE STUDY

The main objectives of the study are to know; The level of NPAs in the banks under study; The Measures taken for recovering NPAs; The Recovery position of NPAs.

RESEARCH METHODOLOGY
The necessary information on the subject has been collected from the diverse sources. Necessary data and information have been mainly collected from the head offices of Punjab National Bank and HDFC Bank in the form of annual reports. The data so collected has been classified and analyzed and tabulated in such a manner that by using percentage and other appropriated techniques of statistical analysis, fruitful and scientific inferences regarding recovery position of Non Performing Assets in Punjab National Bank and HDFC Bank could be derived. Besides this, personal interviews and discussions with the various authorities of the banks has also been made so as to enrich the conclusions and make inferences useful to all the concerned be they, the management, the owners, the policy makers, customers or the employees. Mainly three techniques for financial analysis (i) Arithmetic technique, which consists of percentage change over a particular period, (ii) Accounting techniques, which consists of Ratio Analysis and (iii) Statistical techniques, such as Arithmetic Mean, are used for analyses. The study covers a period of eleven years i.e. from 2000-01 to 2010-11.

CONCEPT OF NON-PERFORMING ASSETS

4

According to RBI an asset (loans) or (advance by a bank) becomes non-performing when it ceases to generate

income for the bank. It means an asset should be treated as NPA if interest or installments of principal remains overdue and unpaid for a period of more than 90 days. The NPAs can be further divided into two categories; (i) Gross NPAs and (ii) Net NPAs.

GROSS NON PERFORMING ASSETS

Gross Non Performing assets are the total outstanding of all the borrowers classified as substandard, doubtful and loss asset. As regards Gross NPAs of Punjab National Bank and HDFC Banks, these have been worked out by taking the closing balances, i.e. on 31st March and shown in Table1

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Table 1: Gross Non Performing Assets Punjab National Bank HDFC Bank Total Gross % of Gross Total % of Gross Year Gross NPAs Advances NPAs NPAs to Total Advances NPAs to Total ` in lac ` in lac ` in lac Advances ` in lac Advances 2000-01 2804316 346010 12.34 463666 14679 3.17 2001-02 3436942 413986 12.05 681372 22286 3.27 2002-03 4022812 498006 12.38 1175486 26545 2.26 2003-04 4722472 467013 9.89 1774451 33561 1.89 2004-05 6041275 374134 6.19 2556630 43917 1.72 2005-06 7462737 313829 4.21 3506126 50889 1.45 2006-07 9659652 339072 3.51 4694478 65776 1.4 2007-08 11950156 331929 2.78 6342689 90697 1.43 2008-09 15470298 250690 1.62 9888305 198807 2.01 2009-10 18660121 321441 1.72 12583059 181676 1.44 2010-11 24210700 437939 1.8 15998267 169848 1.06 (Source: Punjab National Bank and HDFC Bank; Annual Report- Various Issues)

CONCLUSIONS
Table 1 reveals that the Percentage of Gross Non Performing Assets to Total Advances of Punjab National Bank fluctuated between a range of 1.80 percent to 12.34 percent whereas that of HDFC Bank fluctuated between a range of 1.06 percent to 3.17 percent over a period of eleven years under study. On the whole, the Percentage of Gross Non Performing Assets to Total Advances of Punjab National Bank declines with a more rapid rate than that of HDFC Bank. The entire situation can be shown at a glance with the help of the Figure 1
14 12 In Percentage 10 8 6 PNB 4 HDFC 2 0
20 00 -0 20 1 01 -0 20 2 02 -0 20 3 03 -0 20 4 04 -0 20 5 05 -0 20 6 06 -0 20 7 07 -0 20 8 08 -0 20 9 09 -1 20 0 10 -1 1

Years

Figure 1: Gross Non Performing Assets

NET NON PERFORMING ASSETS

Net Non Performing assets are computed by deducting the provisions from Gross Non Performing Assets. Net NPAs are calculated as; Gross NPA-(Balance in interest suspense account+ claims received from DICGC/ECGC and pending for adjustment + Part payment received and kept in suspense account + Total provisions held). As regards NPAs of Punjab National Bank and HDFC Banks, these have been worked out and shown in Table 2

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Table 2: Net Non Performing Assets Punjab National Bank % Age of Net Net NPAs NPAs to Total ` in lac Advances 187111 6.67 181001 5.27 152691 3.8 44896 0.95 11944 0.2 21017 0.28 72562 0.75 75378 0.63 26385 0.17 HDFC Bank % Age of Net Net NPAs Npas to Total ` in lac Advances 2070 0.45 3436 0.5 4292 0.37 2795 0.16 6063 0.24 15518 0.44 20289 0.43 29852 0.47 62762 0.63 0.31 0.18

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

Total Advances ` in lac 2804316 3436942 4022812 4722472 6041275 7462737 9659652 11950156 15470298

Total Advances ` in lac 463666 681372 1175486 1774451 2556630 3506126 4694478 6342689 9888305

2009-10 18660121 98169 0.53 12583059 39205 2010-11 24210700 203863 0.84 15998267 29862 (Source: Punjab National Bank and HDFC Bank; Annual Report- Various Issues)

CONCLUSIONS
Table 2 reveals that Net Non Performing Assets of Punjab National Bank shows a continuous decreasing trend from 6.67 percent in 2000-01 to 0.84 percent in 2010-11, whereas that of HDFC Bank fluctuated between a range of 0.45 percent to 0.18 percent over a period of eleven years under study. On the whole the Net Non Performing Assets of Punjab National Bank registered more variability as compare to that of HDFC Bank. The entire situation can be shown at a glance with the help of the Figure 2
8 7 6 In Percentage 5 4 3 2 1 0
20 00 -0 20 1 01 -0 20 2 02 -0 20 3 03 -0 20 4 04 -0 20 5 05 -0 20 6 06 -0 20 7 07 -0 20 8 08 -0 20 9 09 -1 20 0 10 -1 1

PNB HDFC

Years

Figure 2: Net NPAs to Total Advances

STANDARD ASSETS AND PROVISIONING NORMS

Standard Asset is one which is not NPA. It means an asset on which interest is regularly received and it is not due for a period of more than 90 days is a standard asset. As regards provisions on standard assets, 5A general provision of a minimum of 0.25% of total standard assets is made. The Reserve Bank of India has increased the rate of general provision on Standard Assets to 0.40 % per annum. As regards Standard Assets of Punjab National Bank and HDFC Bank, these have been worked out and shown in Table 3

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Table 3: Standard Assets Punjab National Bank HDFC Bank Total Standard % of Std. Total Standard % of Std. Year Advances Assets Assets to Advances Assets Assets to ` in lac ` in lac Total adv. ` in lac ` in lac Total adv. 2000-01 2804316 2458306 87.66 463666 448987 96.83 2001-02 3436942 3022956 87.95 681372 659086 96.73 2002-03 4022812 3524806 87.62 1175486 1148941 97.74 2003-04 4722472 4255459 90.11 1774451 1740890 98.11 2004-05 6041275 5667141 93.81 2556630 2512713 98.28 2005-06 7462737 7148908 95.79 3506126 3455237 98.55 2006-07 9659652 9320580 96.49 4694478 4628702 98.6 2007-08 11950156 11618227 97.22 6342689 6251992 98.57 2008-09 15470298 15193552 98.21 9888305 9689498 97.99 2009-10 18660121 18338680 98.28 12583059 12401383 98.56 2010-11 24210700 23772761 98.19 15998267 15828419 98.93 (Source: Punjab National Bank and HDFC Bank; Annual Report- Various Issues)

CONCLUSIONS
Table 3.3 reveals that Standard Assets of Punjab National Bank is reflecting an increasing trend as it increased from 87.66% in 2000-01 to 98.19% in 2010-11 whereas that of HDFC Bank fluctuated between 96.83% in 2000-2001 to 98.93% in 2010-2011 over a period of eleven years under study. The entire situation can be shown at a glance with the help of the following Figure 3
100 98 96 94 92 90 88 86 84 82 80
20 00 -0 20 1 01 -0 20 2 02 -0 20 3 03 -0 20 4 04 -0 20 5 05 -0 20 6 06 -0 20 7 07 -0 20 8 08 -0 20 9 09 -1 20 0 10 -1 1

In Percentage

PNB HDFC

Years

Figure 3: Standard Assets

SUB-STANDARD ASSET AND PROVISIONING NORMS

With effect from March, 31 2005 an asset which has been classified as NPA for a period not more than 12 months is considered as sub standard asset. 6As per the latest changes announced by RBI on 18th May 2011 the new provisioning norms on sub standard assets will be 15% as against existing 10%.

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DOUBTFUL ASSETS AND PROVISIONING NORMS

7

With effect from March 31, 2005, an asset would be classified as doubtful if it has remained as an NPA for more

than 12 months. As per new changes by RBI w.e.f. May 2011 for the advance considered as doubtful from one to three years the provisioning requirement is 40%;

LOSS ASSETS AND PROVISIONING NORMS

8

Loss Asset is one where loss has been identified by the bank or its internal or external auditors, or by the RBI

inspection, though the amount has not been written off wholly. As regards provisions on loss assets, the entire amount should be written off. If the assets are permitted to remain in the books for any reason, 100 percent of the outstanding should be provided for Committee etc. Recovery of Non Performing Assets As regards Recovery of Non Performing Assets of Punjab National Bank and HDFC Banks, these have been worked out and compared with Gross Non Performing Assets which has been computed by taking opening balances of Gross Non Performing Assets + additions during the year and shown in Table 4 Table 4: Recovery of Assets Punjab National Bank Year Gross NPAs (during the Year) ` in lac 399133 463976 516949 602451 538877 464416 Recovery ` in lac 53123 49990 70621 135438 164723 150587 % of Recovery to Gross NPAs 13.31 10.77 13.66 22.48 30.57 32.43 HDFC Bank Gross NPAs (during the Year)` in lac 16145 23798 32927 37274 59392 100817 Recovery ` in lac 1466 1512 6382 3713 15475 49928 % of Recovery to Gross NPAs 9.08 6.35 19.38 9.96 26.06 49.52 48.91 51.25 53.98 60.18 47.89

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

2006-07 519955 180883 34.79 128749 62973 2007-08 534391 202461 37.89 186052 95355 2008-09 475259 224569 47.25 432027 233220 2009-10 534504 213063 39.86 456240 274564 2010-11 755111 317172 42 325964 156116 (Source: Punjab National Bank and HDFC Bank; Annual Report- Various Issues)

CONCLUSIONS
Table 4 reveals that the recovery in NPAs of Punjab National Bank increased from 13.31% in 2000-01 and it was 47.25% in 2008-09, however it reached to 39.86% in 2009-10 and 42.00 in 2010-11. In case of HDFC Bank, there is a tremendous increase in the recovery of NPAs as it was just 9.08% in 2000-01 and it reached a level of 60.18% in 2009-10 but slightly reduced to 47.89% in 2010-11. It has increased almost 10 times whereas in case of Punjab National Bank it has increased 3 times so the situation of recovery of HDFC Bank is much better than Punjab National Bank. The situation can be better described with the help of a Figure - 4

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70 60 In Percentage 50 40 30 PNB 20 HDFC 10 0

20 00 -0 20 1 01 -0 20 2 02 -0 20 3 03 -0 20 4 04 -0 20 5 05 -0 20 6 06 -0 20 7 07 -0 20 8 08 -0 20 9 09 -1 20 0 10 -1 1

Years

Figure 4: Recovery of Assets

ANALYSIS AND FINDINGS

Punjab National Bank has been able to reduce its Gross Non Performing Assets as well as Net Non Performing Assets when compared with total advances with a more rapid rate than HDFC Bank, as the % of Gross Non Performing Assets to total advances of Punjab National Bank was 12.34% in 2000-01, which reduced to 1.80% in 2010-11 and in case of HDFC Bank it was 3.17% in 2000-01 which reduced to 1.06% in 2010-11. Standard Assets to Total Advances of Punjab National Banks are reflecting an increasing trend as it increased from 87.66% in 2000-01 to 98.19% whereas that of HDFC Bank fluctuated between 96.83% to 98.93% over a period of eleven years under study. Recovery of NPAs reveals that Punjab National Bank recovered from 13.31% in 2000-01 to 42.00% in 2010-11. In case of HDFC Bank, there is a tremendous increase in the recovery of NPAs as it was just 9.08% in 2000-01 and it reached a level of 60.18% in 2009-10 but in 2010-11 it reduced to 47.89%. It has increased almost 10 times whereas in case of Punjab National Bank it has increased 3 times during eleven years. So the situation of recovery of HDFC Bank is much better than Punjab National Bank.

SUGGESTIONS
In order to avoid non-performing assets it is suggested that names of the defaulters should be sent inter banks. There should be complete exposure of defaulters in case of both the banks. Government should define and implement a strong legal structure regarding non-performing accounts. Willful defaulters should be treated very strongly in case of Punjab National Bank, as the position is worse here. Recovery of Nonperforming assets is a matter of concern for Punjab National Bank, as the recovery rate is very slow. It is suggested that more and more account should be sold to recovery agencies by Punjab National Bank.

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CONCLUSIONS
On the basis of study of Nonperforming assets and their recovery position it can be concluded very safely that the study of last eleven years i.e. from 2000 to 2011 HDFC Bank has performed much better than Punjab National Bank. Punjab National Bank and all other banking sector should refer the suggestions provided in the research paper in order to improve its working and compete to the global forces of competition.

REFERENCES
1. Kapila Uma Indian Economy, performance and policies Academic Foundation New 09. 2. 3. 4. 5. 6. 7. Bidani, S.N., Managing Non Performing Assets in Banks, Vision Books Pvt. Ltd., New Delhi, 2003. Bhole, L. M., Financial Institution & Markets, Tata Mcgraw Hill Publications Ltd., New Delhi, 2000. Report of Trend and Progress on Banking in India,2011 RBI Bulletin; April 2011,p.6 Business News, June, 2011 Gupta, S.P., Statistical Methods (2000), S. Chand and Sons,New Delhi. Kalyani Publishers, Delhi ed. Eighth, 2008-

8. Gupta, Shashi K., Aggarwal, Nisha and Gupta, Neeti, Financial Institutions and Markets, New Delhi, 2004. 9.

Horne, James C. Van, Financial Management & Policy, Prentice Hall of India, New Delhi, 2000.

10. Jain, T. R., Khanna, O. P., Indian Financial System, V. K. Publications, New Delhi, 2007. 11 Kapila Uma Indian Economy, performance and policies Academic Foundation New 09. 12. Khan, M. Y., Indian Financial System, Tata McGraw-Hill Publishing Company Ltd., New Delhi, 1996. 13 Kothari, C.R., Social Banking and Profitability, Arihant Publishers, Jaipur, 1991. 14. Indian Financial system M.Y.Khan 5th edition Tata McGraw Gill Publishing Co. Limited New Delhi Page 11.6 15. Advanced Auditing and Professional Ethics Vol.I Final New Course Board of Studies The Institute of Chartered Accountants of India p. 11.1 Delhi ed. Eighth, 2008-