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N Divyas Ranjithkumar
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A Comparative Study of Public Sector Banks and Private Sector Banks with
Reference to Non-performing Assets Theme - Commerce, Finance and Business
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ISSN : 0972-7302
Abstract: This paper aims at analyzing the relationship between Public Sector Banks and Private Sector Banks
pertaining to Advances and NPAs. Punjab National Bank, State Bank of India, Housing Development Finance
Corporation Bank and Industrial Credit and Investment Corporation of India Bank are considered for the
analysis. Data regarding these banks were taken from Reserve Bank of India website and respective bank’s
websites, secondary data has been used for the research. To analyze these data hypothesis co-relation and sign
test has been used. The study includes data for the period from 2012 to 2016. The study reveals that there is a
significant relationship between advances and growth of the banks. The results thus, imply that the advances
have adverse impact on the NPAs of Public Sector Banks and Private Sector Banks
Keywords: Public Banks, Private Banks, Non-Performing Assets, Advances
I. INTRODUCTION
Banking companies doing great things for the world economy and remains as a backbone of economy of
any country. The Indian banking system consists of 26 public sector banks, 25 private sector banks, 43
foreign banks, 56 regional rural banks, 1,589 urban cooperative banks and 93,550 rural cooperative banks,
in addition to cooperative credit institutions. Their business is accepting money deposits from savers and
lending the same to borrowers, banking activity push the flow of money for productive use and investments.
Banks are not only depending deposits for their resources needs, but also, create credit by recycling the
funds received back from the borrowers. Liquidity of finances and flow of money is essential for any
healthy and growth oriented economy. But bankers not able to collect their loans and advances with interest
on due date, this loans and advances become the non-performing assets. A non-performing asset (NPA) is
a loan or advance for which the principal or interest payment remained overdue for a period of 90 days it
541 International Journal of Applied Business and Economic Research
Divya N. and Ranjith Kumar S.
affects the banking industry as the vulnerably, in turn, country’s economy also affected.
An account is declared as NPA based on the recovery of instalments and interest on loans and
advanced and other aspects as per RBI norms.
• An asset, including a leased asset, when surceases to generate income for the bank become a Non-
Performing Asset.
• A Non-Performing Asset becomes loans or advances when;
o Interest or installment of principal is outstanding for a period of more than 90 days regarding a
term loan
o The account remains ‘out of order’ in respect of an overdraft/cash credit (OD/CC), if the
outstanding balance remains continuously in excess of the sanctioned limit/drawing power. In
cases where the outstanding balance in the principal operating account is less than the sanctioned
limit / drawing power, but there are no credits continuously for 90 days as on the date of
Balance sheet or credits are not enough to cover the interest debited during the same period,
these accounts should be treated as ‘out of order’
o The bill remains outstanding for a period of more than 90 days in the case of bills purchased and
discounted
o The installment of principal or interest thereon cause slack for two crop seasons for short duration
crops.
o The Installment of principal or interest thereon remains outstanding for one crop season for
long duration crops
o The amount of liquidity facility remains outstanding for more than 90 days, in respect of
securitization transaction undertaken in terms of guidelines on securitization dated, February 1,
2006
o In respect of derivate transactions, the overdue receivables representing positive mark-to-market
value of derivative contract, if these remain unpaid for a period of 90 days from the specified
due date for payment.
Uppal (2009) has explained how the NPA’s are grouped by various banks while lending to priority
sectors and also emphasize on the issues and strategies such as NPA recovery, settlements and sanction of
loans before disbursements. The study was conducted in India for the period 2006-2007.
In order to satisfy the objectives of the study, the data collected were entered, arranged and presented
using Microsoft Excel and SPSS and the percentage analysis and Sign test.
H0: There is no significant relationship between NPA and growth of banks
H1: There is a significant relationship between NPA and growth of banks
NPA Analysis
Table 1
Advances of Public Sector and Private Sector Banks
Year Public Sector Bank Private Sector Bank
PNB SBI ICICI HDFC
Advances Increase Percentage Advances Increase in Percentage Advances Increase in Percentage Advances Increase in Percentage
in Rs Increase Rs Increase Rs Increase Rs Increase
Table 2
Gross NPA of Public Sector and Private Sector Banks
Year Public Sector Bank Private Sector Bank
Gross Increase in Percentage Gross Increase and Percentage Gross Increase in Percentage Gross Increase in Percentage
NPA Rs Increase NPA Decrease Increase NPA Rs Increase NPA Rs Increase
in Rs and
Decrease
Table 3
Net NPA of Public Sector and Private Sector Banks
Year Public Sector Bank Private Sector Bank
Net NPA Increase Percentage Net Increase and Percentage Net Increase Percentage Net Increase in Percentage
in Rs Increase NPA Decrease Increase and NPA in Rs Increase NPA Rs Increase
in Rs Decrease
Table 4
Correlation
Bank Expenses Provisions and Contingencies r Results
PNB 1 0.015 0.947* Accepted
SBI 1 0.030 0.913* Accepted
ICICI 1 0.005 0.972** Accepted
HDFC 1 0.000 0.997** Accepted
Table 5
Regression (Model Summary)
Bank R R2 Adjusted Square Standard Error
of Estimate
PNB 0.974 0.897 0.862 3156.33799
SBI 0.913 0.834 0.778 13873.71867
ICICI 0.972 0.946 0.927 2465.31257
HDFC 0.997 0.993 0.991 1135.26169
Table 6
ANOVA
Bank Model Sum of Squares Df Mean Square F Sig.
PNB Regression 259519693.686 1 259519693.686 26.050 0.015
Residual 29887408.494 3 9962469.498
Total 289407102.180 4
SBI Regression 2893172598.483 1 2893172598.483 15.031 0.030
Residual 577440209.097 3 192480069.699
Total 3470612807.580 4
ICICI Regression 316532469.648 1 316532469.648 52.080 0.005
Residual 18233298.147 3 60077766.049
Total 334765767.795 4
HDFC Regression 564271007.067 1 564271007.067 437.820 0.000
Residual 3866457.303 3 1288819.101
Total 568137464.371 4
Table 7
Coefficient
Bank Unstandardized Co-efficient Standardized Co-efficient
B Standard Error Beta t Sig.
PNB 1.907 0.374 0.947 5.104 0.015
SBI 4.220 1.088 0.913 3.877 0.030
ICICI 2.203 0.305 0.972 7.217 0.005
HDFC 5.702 0.272 0.997 20.924 0.000
As the calculated value is higher than that of the standard value 0.05, that is PNB (0.947), SBI (0.913),
ICICI (0.972) and HDFC (0.997), we can conclude that the considered factors are highly co-related. Hence
H1 is accepted. Therefore, Expenses and Provisions are the factors influencing assets to become NPA.
H0: There is no significant relationship between advances and growth of banks.
H1: There is a significant relationship between advances and growth of banks.
Table 8
Descriptive Statistics
Mean Std.Deviation N
PNB Advances 348925.8600 49184.61680 5
SBI Advances 1177350.194 229898.2217 5
ICICI Advances 341093.1520 72882.28262 5
HDFC Advances 316346.0060 106100.4893 5
Table 9
Correlation
PNB Advances SBI Advances ICICI Advances HDFC Advances
PNB Net NPA Pearson Correlation 1 .967** .996** .934*
Sig. (2-tailed) .007 .000 .020
N 5 5 5
SBI Net NPA Pearson Correlation .967** 1 .945* .949*
Sig.(2-tailed) .007 .015 .014
N 5 5 5 5
ICICI Net NPA Pearson Correlation .996** .945* 1 .930*
Sig.(2-tailed) .000 .015 .022
N 5 5 5 5
HDFC Net NPA Pearson Correlation .934* .949* .930* 1
Sig. (2-tailed) .020 .014 .022
N 5 5 5 5
**Correlation is significant at the 0.01 level (2-tailed)
*Correlation is significant at the 0.05 level (2-tailed)
As the calculated value is higher than that of the standard value 0.05, we can conclude that the
calculated values are highly co-related. Hence H1 is accepted. There is a significant relationship between
NPA and growth of banks
Table 10
SIGN TEST Paired - PNB Advances ICICI Advances WITH SBI Advances HDFC Advances
N
SBI Advances - PNB Advances Negative Differences 0
Positive Differences 5
Ties 0
Total 5
HDFC Advances –ICICI Advances Negative Differences 4
Positive Differences 1
Ties 0
Total 5
SBI Advances - PNB Advances HDFC Advances - ICICI Advances
Exact Sig (2-tailed) 0.063 0.375
Since the (K==0.63) Calculated value is greater than that of (S=0) Negative difference, therefore the
H1 accepted. There is a significant relationship between the advances and growth of the bank.
Since the (S=4) Negative difference is greater than that of the (K==0.375) Calculated value, therefore
H0 I accepted. There is no significant relationship between the advances and growth of the bank.
Table 11
PNB Gross NPA ICICI Gross NPA WITH SBI Gross NPA HDFC Gross NPA (Paired)
N
SBI Gross NPA - PNB Gross NPA Negative Differences 0
Positive Differences 5
Ties 0
Total 5
HDFC Gross NPA – Negative Differences 5
ICICI Gross NPA Positive Differences 0
Ties 0
Total 5
SBI Gross NPA - PNB HDFC Gross NPA –
Gross NPA ICICI Gross NPA
Exact Sig (2-tailed) 0.063 0.063
Since the (K==0.63) Calculated value is greater than that of (S=0) Negative difference, therefore the
H1 accepted. There is a significant relationship between the NPA and growth of the bank.
Since the (S=5) Negative difference is greater than that of the (K==0.63) Calculated value, therefore
H0 I accepted. There is no significant relationship between the NPA and growth of the bank
Table 12
PNB Net NPA ICICI Net NPA WITH SBI Net NPA HDFC Net NPA (Paired)
N
SBI Net NPA - PNB Net NPA Negative Differences 0
Positive Differences 5
Ties 0
Total 5
HDFC Net NPA –ICICI Net NPA Negative Differences 5
Positive Differences 0
Ties 0
Total 5
SBI Net NPA - HDFC Net NPA –
PNB Net NPA ICICI Net NPA
Exact Sig (2-tailed) 0.063 0.063
Since the (K==0.63) Calculated value is greater than that of (S=0) Negative difference, therefore the
H1 accepted. There is a significant relationship between the NPA and growth of the bank.
Since the (S=5) Negative difference is greater than that of the (K==0.63) Calculated value, therefore
H0 I accepted. There is no significant relationship between the NPA and growth of the bank.
SUGGESTIONS
• The banks should provide mixed types of loan instead of priority sector lending
• Financial viability of industry should be checked before lending
• Stringent guidelines should be followed by the banks based on RBI guidelines
• Self-sufficiency and utilization repayment modes- all should be clearly informed by the bank to the
borrowers
• Mere sanctioning of loan is not a fundamental duty of the banker to reach the target apart
from that the officials are to be bounded with the responsibility in collecting the loans in specified due
date
• Bankers wants to inspect periodically in checking the borrower’s business or field. If they find any
adverse it should be immediately taken as a serious cause. That to apply some sensitive decisions to
collect the debts in advances
• Bankers prime duty that to identify the financial background of the borrower, their documents and
guarantor’s assurance is sufficient even though it is a mandatory clause
VIII. CONCLUSION
The performance of NPA in Public Sector Banks and Private Sector Banks in India. It is evident that major
portion of loans from public sector banks is towards priority sector lending that is agriculture, micro
financing, housing, education and others; whereas in private sector banks sanctioned loans to industrial
finance and refinancing purposes which is major cause for NPAs in the public sector and private sector
banks respectively.
Due to demonetization impact, despite the announcement of numerous re-structuring schemes by
RBI the bad loans have risen up to 135% in the last two years.
According to recently appointed Reserve Bank deputy governor Viral V Acharya immediate measures
have to be taken to resolve the NPA. He also suggested some ways to resolve this issue, first there has to be
an incentive provided to banks to get on with it and restructure the stressed assets at a price that clears the
market for these assets. If they don’t do it in a timely manner, then the alternative should be costlier in
terms of the price they receive. Secondly, the ultimate focus of the restructuring and the pricing must be
the efficiency and viability of the asset as generating the best price for the bank at all costs may only result
in cosmetic changes and risk serial non-performance of the assets. Thirdly, the government should not be
footing all the losses bank book from bad asset sale. Wherever possible, private shareholders of banks
should also be asked to chip in.
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