COURSE: MANAGEMENT OF BANKS

COURSE CODE: BMT6133

SEMESTER: Tri Semester 2020-21

ASSIGNMENT
SUBMITTED TO
Dr. Muhammed Shafi M K
ASST PROFESSOR VIT
BUSINESS SCHOOL

Name: ASHIQ S S
Registration No: 19MBA1032
 NON-PERFORMING ASSEST ANALYSIS OF PUNJAB NATIONAL
BANKS

ABSTRACT
Non- performing assets are a significant components of the portfolio of banks,are thus a risk
involved on the banking sector.NPAs adversely affect the profitability,liquidity, and solvency of
the banks. The Bank 's main objective is to maximize profits and contribute to the country's
development process. The level of NPA is the best indicator of the healthy position of banking
systems. This paper analyses the position and performance of NPA in Punjab National bank and
also highlights the reasons and impact of non-performing Assets.

Keywords: Non-performing Assets, profitability,performance etc.

INTRODUCTION
Non-performing assets are seen as an important metric for assessing banks' efficiency and
financial stability. NPA level is one of banking sector's drivers of financial stability and growth.
Financial firms and institutions are now facing a significant challenge in the handling of non-
performing assets (NPAs), as these assets prove to be a significant drawback to economic
growth. Banks mainly have the purpose of accepting publicly repayable deposits on demand and
lending funds as loans to different sectors such as manufacturing, agriculture , construction, and
other growth concerns, etc. Banks must follow a satisfactory organisational approach to the
conservation of liquidity and viability of these assets. But there are many assets that generate
both liquidity and profitability imbalances. These reserves are classified as non performing
assets. In other words, the non-performing assets are those assets that generate no interest on a
daily basis. The assets can be divided into four categories by RBI Guidelines.a) standard Assets:-
Standard Asset is one that does not disclose any issues and is not associated with more than
normal business risk. such an asset should not be an NPA. In simple words all the current loans
may be treated as standard assets..b)Sub-standard assets:- A substandard asset would be one,
which has remained NPA for a period less than or equal to 12 months. The credit weaknesses in
those assets are well known. In the case of cash credit, though, the accounts that are NPA for not
more than 18 months will be listed as sub-standard assets.c) Doubtful Assets:- An asset would be
classified as doubtful if it has remained in the substandard category for a period of more than 12
months and their recovery is highly doubtful on the basis of existing facts and conditions.d) Loss
Assets:- these are those assets which are identified as loss by the bank but the amount has not
been written off, partly or wholly.

NPAs are an inevitable burden on the banking sector. So a bank’s success of a bank depends
upon the methods of managing NPAs and keeping them within tolerance level.

NEED FOR THE STUDY

Non-performing assets of banks are one of the biggest hurdles in the way of socio-economic
development of India. The level of NPAs of the banking system in India is still too high. It
affects the financial standing of the banks so that it is a heavy burden to the banks.The
following study tries to understand the concept of NPA, its causes and impact on profitability.
The problem of NPA impacts profitability, Liquidity and results in credit loss. So this study is
carried to analyze the impact on Non- performing Assest of Punjab national banks and how to
overcome the situation of the banks.

REVIEW OF LITERATURE
Singh, V. and Bahadur, R. (2016) discussed the status and trend of NPAs in Indian Scheduled
commercial banks, the factors contributing to NPAs, reasons for the significant impact of NPAs
on Scheduled commercial banks in India and recovery of NPAs through various channels during
the period of 14 years i.e. from 2000 to 2014. The outcome indicates that level of NPA in public
sector banks is comparatively very high. Although the government has taken numerous measures
to reduce the NPAs, a great deal still needs to be done to curb this issue. Schedule commercial
banks' level of NPAs is still high compared with foreign banks.

K.T.Srinivas (2013) reported that NPA is currently a topic of debate in banks due to the rise of
the NPA in commercial banks as well as nationalised banks year by year. The key objective of
this study is to figure out the general causes for being Non-performing assets for assets. He
suggested a bank will manage the problem of can banks' NPA by constant monitoring.

Samir, Karma Deepa (2013 says that bank performance today does not depend on the number of
branches and the amount of deposits. Banks' earnings, liquidity , and solvency are negatively
impacted by the Non-performing Assets status. An overview of the role of NPAs in selected
banks, namely State Bank of India (SBI), Punjab National Bank (PNB) and Central Bank of
India (CBI), is given in this paper. The aim of this analysis is to examine the values, gross and
net NPAs patterns in NPAs as a percentage of gross advances and net advances, gross and net
NPAs as a percentage of total assets, respectively. Finally, they give recommendations for
overcoming a bank's the Non-performing assets.

Chandraappa, P. (June 2014) suggested that the NPA needs to be reduced and controlled to
improve the efficiency and profitability of banks. NPAs have been trying to fight cyclical
activity or this on patient's week and it's a part of underdevelopment like chronic poverty. It
represents the Banks ' performance. It represents the Banks' results. Reduced NPAs typically
offer the impression that banks have improved their credit assessment processes over the years,
and growth in NPAs includes provisions that decrease banks' overall profitability

OBJECTIVES OF THE STUDY

 To examine the gross NPAs and net NPAs of PNB

 To investigate the impacts of NPAs on probability of PNB
 To study the relationship between Nets profit and net NPA of PNB
 To reasons and impact of NPA in PNB

RESEARCH METHODOLOGY

Aim of the present research paper is to analyze the trends in NPAs in terms of values, gross and
net NPAs as a percentage of gross advances and net advances, gross and net NPAs as a
percentage of Total Assets respectively.my research methodology includes gathering relevant
data from the annual reports of PNB and RBI bulletins, statistical tables relating to banks in
India, Report on trends and progress of banking in India, issued by RBI. In this study the annual
reports of PNB for the period of 10 years from 2010-11 to 2019-20 is used. Coefficient of
correlation has been used to determine the relationship between net profit and the net NPA of
profit
I. ANALYSIS OF PERFORMANCE AND MANAGEMENT OF BANKS WITH
REFRENCE TO NPAs
TABLE 1 –
TOTAL ADVANCES IS COMPARED WITH NET PROFIT, GROSS NPA ANE NET NPA

YEAR TOTAL NET PROFIT GROSS NPA NET NPA

ADVANCES

2010-11 242107 4433 4379 2039

2011-12 293775 4884 8720 4454

2012-13 308725 4748 13466 7237

2013-14 349269 3343 18880 9917

2014-15 380534 3062 25695 15397

2015-16 412326 -3974 55818 35423

2016-17 419493 1325 55370 32702

2017-18 433735 -12283 86620 48684

2018-19 458249 -9975 78473 30038

2019-20 471828 336 73479 27219

SOURCE: compiled from Annual Report of the PNB

Interpretation:
The above table shows the total advances, net profit, gross NPA, net NPA of PNB during the
period of 10 years from 2010-11 to 2019-20. Non- performing assets are one of the important
parameters of analyzing financial performance of banks. With the help of above table we can
find the performance of the bank and their management. From this total advances is increasing
continuously on each year, which shows the banks performances is good. On the other hand the
gross NPA and net NPA is also increasing till 2017-18 that time management of PNB is not
satisfactory. At that time scam happens on PNB that is one of the important factor for increasing
the NPA. In that time government took decision for merging the some banks with PNB. After
that in 2018-19 and 2019-20 year the NPA is decreasing which shows that the management of
PNB is improving and satisfactory.

II. TABLE 2 – TOTAL ADVANCES IS COMPARED WITH NET PROFIT

YEAR TOTAL ADVANCES NET PROFIT

2010-11 242107 4433

2011-12 293775 4884

2012-13 308725 4748

2013-14 349269 3343

2014-15 380534 3062

2015-16 412326 -3974

2016-17 419493 1325

2017-18 433735 -12283

2018-19 458249 -9975

2019-20 471828 336

SOURCE: compiled from Annual Report of the PNB

Interpretation:
The above table shows that the total advances and net profit for a period of 2010-11 to 2019-20.
From that the total advances is continuously increasing during this period but the total profit is
increase only on the first two year, after that it is declining till 2018-19. The main reason for the
reduction in profit is to increase in NPA at higher level. But the last year net profit was comes to
positive value. From this it shows that the management of loans and recovery from borrowers is
not well.

RELATIONSHIP BETWEEN NET PROFIT AND NET NPA

In this paper we want to find any relation between net profit and net NPA of PNB. Correlation
analysis refers the numerical measures used to find the relationship between the variables. Thus
the correlation technique is the best method.

TABLE 3-
YEAR NET PROFIT NET NPA
2010-11 4433 2039
2011-12 4884 4454
2012-13 4748 7237
2013-14 3343 9917
2014-15 3062 15397
2015-16 -3974 35423
2016-17 1325 32702
2017-18 -12283 48684
2018-19 -9975 30038
2019-20 336 27219
Co efficient of correlation ( r )= -0.85
Source: compiled from Annual Report of the PNB

Interpretation:
From the above table shows the correlation between these two variables are -0.85. It means that
high degree of negative correlation between net profit and Net NPA .it means that if NPA is
increasing, then the net profit is decreasing. It shows the weak position of the banks. As we
already know that there are two types of customers they are good and bad. In good customers
they leads to increase in profit and paying the interest and principle amount timely while the bad
customers leads to increase in NPA by not paying the interest and installment amount timely.
Thus if there is good management in the banks then the amount of NPA will decrease and net
profit will increase. The main reasons for increasing NPA is the mismanagement of banks.

IV. TABLE 4- Gross NPAs and Net NPAs (NPAs Percentage to Total Advances and Total
Assets)

YEAR NPA as NET NPA/NET

percentage of ASSETS
Total Advances
2010-11 0.85 0.54

2011-12 1.52 0.97

2012-13 2.35 1.51

2013-14 2.85 1.80

2014-15 4.06 2.55

2015-16 8.61 5.31

2016-17 7.81 4.54

2017-18 11.24 6.36

2018-19 6.56 3.87

2019-20 5.78 3.28

Source: compiled from Annual Report of the PNB

Interpretation:
The above table shows that NPA as percentage of total assets and NPA as the percentage of total
advances of last 10 years. In 2010-11 the NPA as percentage of total advance is 0.85 percentage
of total advances and in 2019-20 it is 5.78%. The NPA as percentage of total assets is 0.54 in
2010-11 and 6.36% in 2019-20.thus both are increasing continuously during the time period till
2017-19. Last two year report states that both are decreasing the values. Till 2017-18 the bank
should not give more attention to reduce their NPA level. After the scams and mergers happened
now the bank is more concentrate on how to reduce the NPA level. Now the banks can achieve
the reduction in the NPA level from the last two year. Coming years also bank can go with a
same pace.

NPAs EFFECT ON THE PERFORMANCE OF BANKS

The large percentage of NPA has a harmful impact on the performance of a bank they are,

 Large amount of NPA make adverse effect on profitability. Due to more bad debts the
profit has become lower and it may cause a huge loss for a bank.
 Due to more NPA, the bank will cause the liquidity problem. Then it adversely affect the
value bank for credit facilities.
 NPA also effects on the image of a bank because the customer do not like to transaction
such bank which has a large percentage of NPA

IMPACT OF NPA

The impacts of NPA which mostly affects the performance and profitability of the banks. If the
NPAs is not controlled timely they will,

 Profitability
 Liquidity
 Involvement of banks
 Credit loss
 Assets and liability mismatch will widen
 NPA affects the risk facing ability of the banks
 NPAs causes to decrease the value of share sometimes even below their book value in the
capital market.
FINDINGS

 The fund blocked in a gross NPA is huge amount of 73479 cr. during the year 2019-
20.but there is no follow up to recover the blocked amount.
 There is a high negative correlation between Net NPA and Net profit. It leads to adverse
effect on profitability of banks.
 The increase in gross NPA and net NPA which clearly states that the management and
the performance of the bank is not good.

SUGGESTIONS

The bank should concentrate more on the recovery policy of the banks. The bank should take
possession of the secured assets of the borrower, sell or lease the security, manage the
borrower’s security or appoint someone to manage the same. The loan provided by bank should
give after pre evaluation of the client whether he/she can repaying capacity or not for reducing
NPA. The bank should create a separate recovery cell and should give the regular updates to the
head office. NPA can be reduced by the proper selections of borrowers and banks to get a timely
repayment from the client.

CONCLUSIONS

Non-performing Assets (NPAs) is the serious issues and danger to the banks, which basically
destroy the financial positions of the bank. If the banks have higher the NPAs it mainly affects
the trust and credibility of the banks. The results of study through the above it is clearly states
that total advances and NPA, gross NPA and Net NPA both are increases every year during the
last 10 year. The main reasons for increasing the NPA is the mismanagement of banks and
wrong choice of client. The relationship between the net NPA and net profit is very low degree
of negative correlation is due to the large amount of NPA. It mainly affect the profitability of
banks. So that bank can’t able to give loans to the new customers.
REFERENCE

Karma Deepa, Samir. “A Comparative Analysis of Non-Performing Assets (NPA) of Selected

Banks in India, International Journal of Management, Vol.3, No.1, June 2013.

K T Srinivas “A Study on Non-Performing Assets of Commercial Banks in India” International

Monthly Journal of Research in Management &Technology, Vol.11, December 2013,ISSN
2320-0073

Singh Vivek and Bahadur Raj (2016). A study of non-performing assets of commercial banks
and its recovery in India. Annual Research Journal of SCMS Pune.

Chandraappa Prakash (June 2014). A cyclical structure on non-performing assets of scheduled

commercial banks in India. IOSR Journal of Economics and Finance, Vol.3, Issue 4, ISSN :
2321-592

Annual Report of Punjab National Banks, RBI Bulletins.