ACKNOWLEDGEMENT

It is a matter of great pleasure for me in submitting the project report on “NON

PERFORMING ASSETS (NPA ) MANAGEMENT ANALYSIS IN BANKS” For the fulfillment of
the requirement of my course from University of Calcutta.

I would like to express my gratitude to all the people who have helped me to successfully
complete my project.

Firstly, I would like to express heartfelt gratitude to University of Calcutta for giving such a
wonderful opportunity to create a project & gain knowledge about this knowledgeable
topic.

Secondly, I would like to thank my Teacher Professor Partha Manna who helped me in every
single aspects during the preparation of this project.

And lastly, I would like to thank all my teachers, my parents & my friends who have been
very supportive to me & for which this project has become such a successful one.

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 CONTENT
Sl. No. Title Page. No.
ACKNOWLEDGEMENT 1
1
CHAPTER 1: INTRODUCTION
2 1.1 Types of NPA 4
1.2 Objectives of the study of
NPA 5
1.3 Limitation of the study of
NPA 6
Chapter 2: Methodology 7-8
3
Chapter 3: Conceptual
4 framework
3.1 : Examining the rise of NPA
In india 9
3.2 : current scenario 9-10
3.3 : International scenario 11
Chapter 4 : Data analysis and
5 interpretation
4.1.1 Gross NPA ratio 12-13
4.1.2 Net NPA ratio 14-15
4.1.3 Provisions ratio 16-17
4..1.4 Comparison of Gross
and Net ratio in Public Sector
Banks 17-18
4.1.5 Comparison of gross and
net NPA ratio in private sector
18-19
banks
20-21
4.2.1 Standard assets ratio
21-22
4.2.2 Loss assets ratio
4.3 Impact of NPA on
23-24
Profitability

Chapter 5 : Conclusion and 25

6 Recommendations
Chapter 6: Bibliography 26
7
Questionnaire 27
8
Student Declaration 28
9

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3
CHAPTER:1 INTRODUCTION
Meaning of Non -Performing Assets (NPA)
The banking sector is the backbone of a country's economy and directly affects it’s
development. In order to ensure continued growth, it is critical that the banks and financial
institutions are robust in managing the stress, particularly caused by Non-Performing assets
(NPAs) or bad loans.

NPAs are nothing but assets and loans that have become unrecoverable and costs
banks a loss of plenty of resources – neither are banks able to earn interest on the locked
amount in loans nor are they able to recover the base loan amount from the defaulters.
Therefore, banks and credit societies must take serious measures to manage and recover
NPAs.

Non- Performing Assets or NPA are like a cancer worm that has been destroying
the banking system of India slowly and steadily. NPA are bad loans with banks or other
financial institutions whose interests and or principal amounts are overdue for a long time.
This time is usually 90 days Or more. Like any other business, banks also must run on profits,
but NPA eats into that margin for banks.

1.1 Types of NPA

 Substandard NPA: Those NPA that have remained overdue for a period of less than
or equal to 12 months.
 Doubtful NPA : Those NPA that have remained in the substandard category for a
period of equal to or less than 12 months.
 Loss Assets: This occurs when the NPA has been recognized as a loss by the bank, or
the internal or external auditor or on RESERVE BANK OF INDIA (RBI) inspection but
the loan has not been forgiven completely.

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1.2 OBJECTIVES OF THE STUDY OF NPA
MANAGEMENT ANALYSIS IN BANKS

NPA ( Non – Performing Assets) analysis is an important process for banks because it’s help
them to identify and manage credit risks, maintain financial stability, and ensure regulatory
compliance.

Here are the main objectives of NPA Management Analysis in Banks :

1. To understand the concept of NPA.

2. To identify the causes of NPAs in Indian Banking System.
3. To study the impact of NPA in Banking sector
4. To study the preventive mechanism for NPA and Compromise settlement scheme.
5. It’s help to monitor the progress of loan recovery efforts. This helps to identify
problem areas and take corrective action to improve recovery rates.

Overall, NPA analysis plays a critical role in helping banks to manage credit risk,
maintain financial stability and ensure regulatory compliance.

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1.3 LIMITATIONS OF THE STUDY OF NPA
MANAGEMENT ANALYSIS IN BANKS
NPA (Non -Performing Assets) management analysis is an essential aspect of banking, and
there are several limitations to this analysis.

Here are some main limitations of NPA management analysis in banks :

1. Limited data availability

2. Lack of standardization
3. Subjectivity in loan classification
4. Legal and regulatory constraints
5. Lack of transparency

Since my study is based upon secondary data, the practical operations as related to NPAs
are adopted by the Banks are not learned.

NPAs are changing with the time. The study is done in the present environment without
foreseeing future development.

The study is based on secondary data as published in various publications of RBI and their
reports. These data are based on historical accounting Concept, which ignores the impact of
inflation.

The study, as limitations, is confined only to the selected and restricted indicators and the
study is confined only for the period of five years.

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CHAPTER : 2 METHODOLOGY
The research methodology is a systematic way of studying the research problem. The
research methodology means the specific procedure or techniques used to identify, select,
process and analyse information about the task. Before undertaking any task it becomes
very essential for an one to determine the problem of study. I have adopted the following
procedure in completing my project report.

1. Research design
2. Determining the data sources
3. Tools used for analysis of data
4. Analysis the data
5. Interpretation of the data
6. Preparing research report

 Research Design
The research design tells about the mode with which the entire project is prepared.
My research design for this study is basically analytical. Because I have utilized the
large number of data of the banking sector. In this project theoretical study is also
attempted.

 Determining the data sources

The data source can be primary or secondary. The primary data are those data which
are used for the first time in the study. However such data takes place much time
and ate also expensive. Whereas the secondary data are those data which are
already available in the market. These data are easy to search and are not expensive
too. For my study I have utilized almost totally the secondary data. But somehow I
have also used primary data in shape of interviews.

 Tools used for analysis of data

The data collected were analyzed with the help of statistical tools like Ratio analysis,
Trend analysis. Tables are used to represent the consolidated data. Graphical
representation is also used for better comprehension and presentation.

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 Analysis of data
The primary or secondary data both would be useful until they are edited and
studied or analysed. When the person receives the data many Unuseful data would
also be there. So, I analysed the data and edited it and turned it in the useful
manner. So, that it can become useful in my report study.

 Interpretation of the data

With the use of analysed data I managed to prepare my project report. But an
analysing of the data would not help my study to reach towards it’s objectives. The
interpretation of the data is required so that the others can understand the crux of
the study in more simple way without any problem. So I have added the chapter of
analysis that would explain others to understand my study in simpler way.

 Preparing research report

This is the last step in preparing the project report. The objective of the report
writing was report the findings of the concerned authorities. I have attached all the
requirements with my report.

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CHAPTER : 3 CONCEPTUAL FRAMEWORK

3.1 Examining the rise of Non-Performing Assets in India :

The issue of Non-Performing Assets (NPAs) in the banking sector has become the subject of
much discussion and scrutiny. The Standing Committee on Finance recently released a
report on the banking sector in India, where it observed that banks capacity to lend has
been severely affected because of mounting NPAs. The Estimates Committee of Lok Sabha is
also currently examining the performance of public sector banks with respect to their
burgeoning problem of NPAs, and loan recovery mechanisms available.

Additionally, guidelines for banks released by the Reserve Bank of India (RBI) in February
2021 regarding timely resolution of stressed assets have come under scrutiny, with multiple
cases being filed in courts against the same. In this context, we examine the recent rise of
NPAs in the country, some of their underlying causes and steps taken so far to address the
issue.

3.2 CURRENT SCENARIO :

As my research in September 2021,the national scenario of Non-Performing Assets (NPA) in

India had been a cause of concern for the banking sector and the economy as a whole. An
NPA is a loan or an advance where the borrower has not made any repayments for a period
of more than 90 days.

According to data of Reserve Bank of India (RBI), the gross NPA ratio of banks in India stood
7.5% as of March 2021,which was the highest in more than two decades. The RBI had
projected that the gross NPA ratio may increase to 9.8% by March 2022,due to the impact of
the COVID-19 pandemic on the economy.

The NPAs are concentrated in certain sectors such as infrastructure, power, steel and
textiles among others. The high level of NPAs has led to concerns about the health of banks,
as they have to set aside a large amount of funds as provisions to cover potential losses on
these loans. This, in turn, has affected the profitability of banks, and constrained their ability
to lend further.

The government and RBI have taken several measure to address the NPA issue. These
include the insolvency and Bankruptcy code(IBC) , the Asset quality review(AQR) of banks
and the Prompt corrective action (PCA) framework for weak banks. The IBC has helped in
resolving some of the cases of stressed assets and the AQR and PCA have ensured that
banks identify and address the problem loan in a timely manner.

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However, the COVID-19 pandemic has added to the challenges in the NPA management, as
the lockdowns and the other restrictions have affected the cash flows of business and
individual and led to higher delinquencies. The government and the RBI have announced
various relief measure such as loan restructuring schemes and credit guarantees, to support
it remains will be in containing the NPA problem in the near future . The government has
also Recapitalized public sector banks to strengthen their balance sheets and improve their
ability to lend. Additionally, the Reserve Bank of India has implemented various measures to
monitor and manage NPAs in the banking sector, including stress testing and asset quality
reviews.

India has been ranked 5th on a list of countries with highest Non-Performing Assets (NPA)
levels and is on top spot among the BRICS nations, according to latest report by CARE
Ratings.

It’s important to note that NPA ratios can change over time due to various economic,
regulatory and political factors and the latest data on India’s NPA ratio may be different
from what I have provided here.

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3.3 INTERNATIONAL SCENARIO :

The International Monetary Fund (IMF) new data doesn’t show Indian banking in the best
light or company. Based on new data collected by the IMF, India has been ranked 33 among
137 nations in a global list of countries with bad in a decreasing order.

Among large economics, India with a gross Non-Performing Assets ( NPA) ratio of 10.3% in
the September ended quarter, is doing only slightly better than Russia which has a gross
NPA ratio of 10.7%.

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CHAPTER: 4 DATA ANALYSIS & INTERPRETATION

To analyse the data, first of all we need to study about what data analysis and interpretation
is. It is the process by which sense and meaning are made of the data gathered in qualitative
research, and by which the emergent knowledge is applied to clients problem. This data
often takes the form of records of group discussions and interviews, but is not limited to
this. Through process of revisiting and immersion in the data and through complex activities
of structuring, Re-framing Or otherwise exploring it the researcher looks for patterns and
insights relevant to the key research issues and uses these to address the client’s brief.

In this chapter some comparative analysis have been done to achieve the objectives of the
study. This is accomplished through various ratios analysis and correlation between Net
Profits and Net NPAS.

4.1 COMPARATIVE RATIOS

4.1.1 Gross NPAs Ratios (%)

Gross NPA Ratio= Gross NPA/Gross Advances*100

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Interpretation :

This analysis indicates the Gross NPA Ratio of Public Sector Banks and Private Sector Banks
from 2015 till 2020. As we know very well that higher this ratio, more dangerous position it
is for the Banks.

From the above charts we can clearly understand that rate of growth of Gross NPA of Public
Sector Banks is increasing since 2015 to 2018 which is 5% to 14.6% and in Private Sector
Banks also it is gradually increasing since 2015 from 2.1% to 5.45% in 2020.

But we can say that Gross NPA Ratio of Public Sector Banks is decreases in last two years
from 14.6% to 11.6% and 10.25% in 2019 and 2020. Where’s in Private Sector Banks it rises
from 4.7% to 5.45% only from year 2018 to 2020.

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4.1.2 Net NPA Ratio (%)

Net NPA Ratio = Net NPA/ Advances*100

14
Interpretation :

This analysis indicates the Net NPA Ratio of Public Sector Banks and Private Sector Banks
from 2014 to 2019. As we know very well that higher this ratio, more dangerous position it
is for the Banks.

From the above chart we can clearly understand that rate of growth of Net NPA of Public
and Private Sector Banks is increasing since 2014 to 2018 which is 2.6% to 8% and 0.7% to
2.4% respectively. But in the year 2019 ratio is decreases in Public and Private Sector Banks
from 8% to 4.8% and 2.4% to 2% respectively.

But we can say that increase in Net NPA Ratio of Public Sector Banks is very alarming which
has increased by 2.2% where’s in Private Sector Banks it rises by 1.3% only from year 2014
to 2019.

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4.1.3 Provisions Ratio

Provision Ratio = Provision/ Gross NPAs*100

16
Interpretation :

This analysis indicates the Provision Ratio of Public Sector Banks and Private Sector Banks
from 2016 to till 2020. As we know very well that higher this ratio more safe position for
Banks.

From the above chart we can clearly understand that due to increasing rate of Gross NPA’s
of Public and Private sector Banks, provisions made by these Banks are decreasing since
2015 to 2017 which is 436.23% to 24.89% and 90.46% to 63.96% respectively. After that in
public bank provision ratio is increased but overall it is decreased by 6.69% and in private
sector bank also it’s is 21.2%.

We can say that if provisions are decreasing and Private Sector Banks are having less NPAs
as compared to Public Sector Banks even then they are making more provisions to be on the
safer side.

4.1.4 Comparison of Gross NPA ratio and Net NPA ratio of Public Sector Banks

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Interpretation :

This analysis indicates the relationship between Gross NPA Ratio and Net NPA Ratio. These
both are showing increasing trend from 2015 to 2018 in Public Sector Banks but is declines
in last year by 80% and 60% respectively.

Above chart shows that Gross NPA’s are more as compared to net NPA, which means more
provisions are made by Public Sector Banks so as to reduce the risk of non recovery.

4.1.5 Comparison of Gross NPA Ratio and Net NPA Ratio of Private Sector Banks

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Interpretation :

This analysis indicates the relationship between Gross NPA Ratio and Net NPA Ratio. These
both are showing increasing trend from 2015 to 2018 in Private Sector Banks. But in 2019
Net NPA Ratio is decreased by 0.4% but Gross NPA Ratio is still increased.

Above chart shows that Gross NPA’s are more as compared to Net NPA, which means more
provisions are made by Private Sector Banks so as to reduce the risk of non recovery.

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4.2 COMPARISON OF LOAN ASSET OF BANKS

4.2.1 Standard Assets Ratio (%)

Standard Assets Ratio = Total Standard Assets/ Gross NPA’s

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Interpretation :

This analysis indicates the standard assets ratio of Public Sector Banks and Private Sector
Banks from 2015 to till 2020. As we know very well that higher this ratio, more
advantageous it is for the Banks.

From the above chart we can clearly understand that the Standard Asset Ratio of Public and
Private Sector Banks is decreasing constantly from 2015 to 2020 & has fallen down to
17.34% from 46.18% for Private Sector Banks & to 8.75% from 19.17% for Public Sector
Banks.

4.2.2 Loss Assets Ratio (%)

Loss Assets Ratio=Total loss assets/ Gross NPA’s

Table :7 Loss assets ratio of public sector bank and private sector bank

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Figure : 7 Loss assets ratio of public sector bank and private sector bank

Interpretation :

This analysis indicates the Loss assets ratio of Public and Private Sector Banks from 2015 till
2020 . As we know very well that lower this ratio, more advantageous it is for the Banks.

From the above chart we can clearly understand that the Loss Assets Ratio of Private Sector
Banks is decreasing constantly from 2015 to 2019 &has fallen down to 0.04% from 0.15% for
Private Sector Bank but it increased in 2020 by 0.13%. Public Sector Banks is increasing
constantly from 2015 to 2020 & has rise up to 0.17% from 0.04%.

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4.3 IMPACT OF NON -PERFORMING ASSETS ON
PROFITABILITY
4.3.1 Correlation between Net profit & Net NPA of public Sector Bank

Table: 8 Correlation between Net profit & Net NPA of public sector bank

4.3.2 Correlation between Net profit & Net NPA of Private sector bank

Table: 9 Correlation between Net profit & Net NPA of private sector bank

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Relationship between Net Profit and Net NPA

To established relationship between Net Profit and Net NPA Pearson’s Correlation has been
used. Pearson’s correlation for Public sector Banks is -0. 698 and for Private sector Banks is
--0.407.

Interpretation :

As we can see that correlation for Private Sector Banks is -0. 407 and for Public Sector Bank
is -0. 698 . It means that there is a negative relation between Net Profit and NPA of Bank.
But in Public sector banks it stated that strongly negative relation between Net profit and
NPA.

It simply means that as NPA increase and Profit Decrease.

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CHAPTER : 5 CONCLUSION & RECOMMENDATIONS
The NPA is one of the biggest problems that the Indian Bank’s are facing today. If the proper
management of the NPA is not undertaken it would hamper the business of the banks. If the
concept of NPA is taken very lightly it would be dangerous for the Indian banking sector. The
NPA would destroy the current profit interest income due to large provisions of the NPA and
would affect the smooth functioning of the recycling of the fund’s.

Bank also redistribute losses to other borrowers by charging higher interest rates. Lower
deposit rates and higher lending rates repress savings and financial markets, which hampers
economic growth.

Although Public Sector Banks have good substandard assets when compared with Private
Sector Banks but Private Sector Banks are more efficient than Public Sector Banks with
regard to all the other factors which gives them a good upper hand.

The Non- Performing Assets have always created a big problem for the Banks in India. It is
just not only problem for the Banks but for the economy too. The money locked up in NPAs
has a direct impact on profitability of the bank as Indian Banks are highly dependent on
income from interest on funds lent.

This study shows that extent extent of NPA is comparatively very high in Public Sector
Banks. Although various steps have been taken by Government to reduce the NPAs like SA4
(Scheme for Sustainable Structuring of Stressed Assets) and Indradhanush scheme but still
a lot needs to be done to curb this problem. The NPAs level of our Banks is still high. It is not
at all possible to have zero NPAs. The Bank management should speed up the recovery
process. The problem of recovery is not with small borrowers but with large borrowers and
a strict policy should be followed for solving this problem. The Government should also
make more provisions for faster settlement of pending cases and also it should reduce the
mandatory lending to priority sector as this is the major problem creating area. So the
problem of NPA need lots of serious efforts otherwise NPAs will keep killing the profitability
of Banks which is not good for the Growing Indian economy at all.

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CHAPTER : 6 BIBLIOGRAPHY
1. https://dbie.rbi.org.in/DBIE/dbie.rbi?site=publications#!4

2.https://www.clearias.com/non-performing-assets-npa/

3. https://groww.in/p/non-performing-assets

4. https://www.google.com/amp/s/m.economictimes.com/definition/non-performing-assets/amp

5. https://www.wallstreetmojo.com/full-form-of-npa/

6. https://www.google.com/amp/s/www.moneycontrol.com/news/business/rbi-bulletin-banks-
gross-npas-fall-to-4-5-at-end-december-from-6-5-a-year-ago-10455351.html/amp

7. https://youtu.be/5nr0Qm-qg-0

8. https://youtu.be/saiJCawMtVc

9. https://byjus.com/bank-exam/npa-critical-challenge-for-indian-banking-sector/

10. https://m.rbi.org.in//scripts/BS_ViewMasCirculardetails.aspx?id=5154

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QUESTIONNAIRE
1. What is the time period for a term loan to be classified as NPA?
a. 30 days
b. 90 days
c. 60 days
d. 365 days
2. How many types of NPA Have ?
a. 3
b. 5
c. 4
d. 2
3. NPA of Indian commercial Banks are
a. Buildings and land
b. Government Securities
c. Cash holding
d. Loans not repaid within stipulated time
4. Banks can face _______ risk due to high NPA ?
a. Credit
b. Legal
c. Systematic
d. None of the above
5. When RBI started implementation of NPA guidelines –
a. 1992
b. 1988
c. 1990
d. 1999
6. What is the full form of NPA –
a. Non performing assets
b. Net performing assets
c. Non perfect assets
d. Net perfect assets
7. What do we call a loan Which remains NPA for a period less than or equal to 12
months ?
a. Loss assets
b. Sub – Standard assets
c. Doubtful assets
d. Bad debt

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 STUDENT DECLARATION
I hereby declare that the project work with the title “ NPA MANAGEMENT ANALYSIS IN
BANKS “ submitted by me for the partial fulfillment of the degree of B.COM ( Honours) in
Accounting & Finance under the University of Calcutta is my original work and has not been
submitted earlier to any other University/Institutions for the fulfillment of the requirement
for any course of study.

I also declared that no chapter of this manuscript in whole or in part has been incorporated
in this report from any earlier work done by others or by me. However extracts of any
literature which has been used for this report has been duly acknowledge providing details
of such literature in the references.

Place : Rishra Name : SUMAN ROY

Date : C. U. Registration no. : 611-1114-0569-20

C. U. Roll no. : 201611-21-0256

College Roll no. : 20

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