Journal of Advanced Research in Accounting & Finance Management

Volume 4, Issue 3&4 - 2018, Pg. No. 1-4

Peer Reviewed Journal
Research Article

An Analytical Study on Non-Performing Assets

of Punjab National Bank
Preeti Gupta1, Sudip Banerjee2
MBA Student, ITM University, Gwalior.
1

2
Assistant Professor, ITM University, Gwalior.

Abstract
The loans and advances given to customers are assets for Banks. If customers don’t pay any of the amount
that is, either interest or part of principal or both the amounts, the loan turns into bad loan. The nonpayment
of interest or principal or both the amounts reduces cash flow for the Bank, which can interrupt budgets
and decrease earnings. The provisions for bad or doubtful debts, which are set aside to cover potential
losses, reduce the capital available to provide subsequent loans. The losses from defaulted loans are
written off against earnings. This is the study about non-performing assets of PNB over the last five years
from year 2013-14 to 2017-18.

Keywords: Non Performing Assets, Doubtful Debts, Bad Debts, Budget, defaulted loans

Introduction the year 2017 consolidated PNB’s position in the banking

Punjab National Bank
Punjab National Bank is one of the India’s Multinational
Banking and financial service Provider Company,
headquartered in Delhi, India. It is India’s first Swadeshi
Bank which commenced its operations on 12 April 1895
from Lahore, with an authorized capital of Rs 2 lac and
working capital of Rs 20,000. It is second largest public
sector Bank in terms of business and total Assets. The four
segments through which PNB operates are: Corporate/
Wholesale banking, Retail Banking, Treasury and other
banking operations. It also provides other banking services
such as Insurance distribution, merchant banking, mutual
fund and wealth management service.
Industry.
Non-Performing Assets
Those assets of bank which don’t perform for a period
of time are known as Non-Performing Assets. Financial
Institutions provide money or assets to the companies
which remains unpaid sometimes by the borrower. This non
payment of money or assets is termed as non-performing
assets. In other words non-performing assets are debt
obligations or bank’s non-performing loans or advances
for which Principal and interest overdue for a period of
90 days (standard period for categorizing any asset as a
non-performing asset). These are those assets from which
bank do not get any return.

The Bank crossed a milestone of INR 10 lakh crore in domestic Classification of Assets
business as on 31st March 2018. The bank maintained its
stronghold in CASA deposits which has helped bank contain As per RBI guidelines every bank has to classify its assets
the cost of funds. Bank also continued its relentless drive into these categories:
against NPAs and made successful recovery efforts. One
Standard Assets: Those assets which are generating regular
crore new customers got associated with the bank during
income to the bank and do not disclose any problem in
Corresponding Author: Preeti Gupta, MBA Student, ITM University, Gwalior.
E-mail Id: preeti000020@gmail.co
Orcid Id: https://orcid.org/0000-0003-0695-8589
How to cite this article: Gupta P, Banerjee S. An Analytical Study on Non-Performing Assets of Punjab National Bank. J Adv Res Accnt
Fin Mgmt 2018; 4(3&4): 1-4.

Copyright (c) 2018 Journal of Advanced Research in Accounting & Finance Management
Gupta P et al.
J. Adv. Res. Accnt. Fin. Mgmt. 2018; 4(3&4)
terms of payment of principal amount or interest amount.
These assets are treated as current loans not as non-
performing assets. The risk associated with these types
of assets is not more than normal risk.
Sub-standard Assets: Those assets which have been
classified as NPA for a period of not exceeding two years.
W.e.f. 31st march 2005 substandard assets are those assets
which remained non-performing for a period of less than
or equal to 15 months. These types of assets defined credit
weakness.
Doubtful Assets: Those assets which have been remained
NPA for a period exceeding two years. With the effect from
31st march 2005, if an asset remained non-performing for
a period exceeding 12 months are classified as doubtful
assets. Doubtful Assets inherent all the weaknesses of sub-
standard assets. The recovery of these is highly questionable
on the basis of current facts, value and conditions.
Loss Assets: Those Assets which are doubtful in nature and
are identified as non-recoverable by bank itself or auditors
or RBI inspectors. The amount of these assets has not
been written off, fully or partially. Only those assets are
categorized as loss assets where no security is available.
Literature Review
Various studies are conducted on the issue of non-
performing assets in banking sector. Below are the literature
reviews of some of the researches:
Devi Suman (2015) conducted a study on non-performing
assets of Punjab National Bank and analyses the position
of NPAs in PNB. The research paper also compares total
advances, net profits, Gross NPAs and net NPAs. She
concluded that there is low degree of correlation between
net NPAs and net profit and the main reason for increasing
number of NPAs is mismanagement of banks. The Net profit
of PNB starts decreasing from year 2014 and 2015 which
put adverse effect on bank’s profitability.
Samir and Kamra D. (2013) studied “A comparative analysis
of Non-performing Assets (NPAs) of State Bank of India,
Punjab National Bank, and Central Bank of India. The
paper details about the sector wise classification of NPAs
and reason for their occurrence. They concluded that the
Skills of NPA management, include working out negotiated
settlements, comprises constituting active settlement,
advisory committee, restructuring and rehabilitation,
effective recourse to suitable legal remedies are to be
supplemented with most suitable legal reforms by banks
to recover dues well in time so that the financial so that
the soundness of banking sector will not be undermined.
2
Rao M. and Patel A. (2015) conducted a study on non-
performing asset management with reference public sector
banks, private sector banks and foreign banks in India.
Their findings reveals that the percentage of Gross NPA
to Gross advances is increasing for public banks, ratio of
Loss Advances to Gross Advances are higher in foreign
banks. They concluded that the Ratio of Gross NPA to Gross
Advances for public sector, private Sector and foreign Banks
does not have significant difference between 2009 to 2013.
Gupta A.K. and Gautam P. (2017) studied the performance
of the Punjab National Bank with reference to the problem
of Non-Performing Assets (NPA). Since the fund blocked
in as Gross NPA is of huge amount, the study shows the
negative correlation between Net NPA and Net Profit.
The study concluded that NPAs must be handled in such
a manner that would not ruin the financial positions and
affect the image of the banks.
Mishra U.M. and Pawaskar J.R. (2017) conducted a study
on non- performing assets and its impact on banking sector.
The research paper helps in understanding the concept of
NPAs, sector wise NPAs, recovery of NPAs through different
channels, and impact on NPAs in banking sector. They
concluded that the bank needs be proactive in the selection
of clients and customers while sanctioning of loans. The
operation of the bank is wide enough to cater to the needs
of broad spectrum of the society and economy of India
at large.
Causes of NPAs
The problem of NPAs is a severe problem in banking sector.
Both internal as well as external factors are responsible for
rise in number of NPAs in banks. As compared to private
sector banks, the problem of NPA is more in public sector
banks. Below mentions reasons are finding out from
previous research reports factors those are more commonly
responsible for creating Non Performing assets in the
banking sectors:
Internal factors
• Absence of regular industrial visit
• Defective lending process
• Managerial deficiencies
• Inappropriate technology
• Poor credit appraisal system
• Improper SWOT Analysis
External factors
• Change in government policies
• Ineffective recovery tribunal
• Lack of demand of products
 Gupta P et al.
3 J. Adv. Res. Accnt. Fin. Mgmt. 2018; 4(3&4)

• Willful defaulters
• Industrial sickness
• Huge losses of Business due to Natural calamities

Objective of the Research

• To find the total NPAs in Punjab National Bank.
• To find out the correlation between percentages of
return on Assets as compared to percentage of Net NPA. The graph shows that the Net NPA of PNB are increasing
• To know the effect of NPA and steps taken by RBI to every year except in the financial year 2016-17 where there
control NPAs. is slight decline in the Net NPAs. In the year 2017-18 the
• To provide specific suggestion to reduce NPAs. total no. of Net NPAs are 48,684cror and percentage of
Net NPA is 11.24 in FY 2017-18.
Non – Performing Assets of Punjab National Bank
Correlation between percentage of Net NPA and
NPAs for the year 2013-14 to 2017-18 percentage of return on Assets
In crore
Mar '18 Mar '17 Mar '16 Mar '15 Mar '14
Gross NPA 86,620.05 55,370.45 55,818.33 25,694.86 18,880.06
Correlation between percentage of net NPA or return on
Assets = - 0.92536
Net NPA 48,684.29 32,702.11 35,422.57 15,396.50 9,916.99
% of Gross
18.38 12.53 12.9 6.55 5.25
NPA
% of Net NPA 11.24 7.81 8.61 4.06 2.85
Return on
-1.6 0.19 -0.61 0.53 0.64
Assets %

Gross NPA chart from 2013-14 to 2017-18

There is a negative correlation between percentage of net

NPAs and percentage of return on Assets in PNB. The NPAs
are increasing over the year whereas return on assets is
declining in every successive year. Both the lines in the
line chart are moving in opposite direction showing a
highly negative correlation between percentage of NPA
and percentage of return on Assets in Punjab National
Bank during the FYs 2013-14 to 2017-18.

Effect of NPAs

Having non-performing assets in balance sheet put three

The graph shows that the gross NPA of PNB are increasing
every year except in the financial year 2016-17 where there
is slight decline in the Gross NPAs. In the year 2017-18 the
total no. of Gross NPAs are 86,620 crore.
Net NPA chart from 2013-14 to 2017-18
distinct burdens on lenders.
1. Because of non-payment principal or interest cash flow
for lender reduces, which affect the budget as well as
decreases earnings.
2. A loan loss provision reduces the availability of capital
for later loans.
3. The losses from defaulted loans are written off against
earnings which decreases the actual earning.

Steps taken by RBI and Government to control NPAs

• Launched “Mission Indradhanush”.

• Government proposed to introduce “Bankruptcy Code”.
Gupta P et al.
J. Adv. Res. Accnt. Fin. Mgmt. 2018; 4(3&4) 4

• Tighten the “Corporate Debt Reconstructing
Mechanism”.
• Set up a “Joint lenders forum”.
• Prodding banks to “reveal real pictures of bad loans”.
• Asking Banks to “increase provision for stressed assets”.
• Introduced “5:25 Scheme” under which loans are to
be written off over 25 years with refinancing option
after every 5 years.
• Empowering banks to take majority control in defaulting
companies under “Strategic debt Reconstructing
Scheme”.
Conclusion and suggestions
NPA are weighing down the banking system. Many banks do
not have enough money to grant new loans, which is a
blow to the way of income to the banks. Non Performing
Assets of Punjab National Banks has risen significantly in
past five years. In March 2018, Gross NPA of PNB remained
Rs. 86,620 crore. Higher the Non Performing Assets, the
more loss a bank will face. Punjab National Bank has the
highest share of bad loans in their advances. NPA of PNB is
on the rise because bank is recognising loans as bad loans at
a slower pace. Bank has to identify the bad loans properly
in order to reduce the percentage of NPAs.
asset management with reference public sector banks,
private sector banks and foreign banks in India”. Journal
of Management and Science 2015; 5(1).
3. Samir, Kamra Deepa. “A comparative analysis of non-
performing assets (NPAs) of selected commercial banks
in India”- opnion, 2013; 3(1).
4. Gupta A.K. and Gautam Priyanka. “Non-Performing
Assets (NPAs): A study of Punjab National Bank”.
International journal of Science technology and
management 2017; 6(1).
5. Mishra UM, Pawaskar JR. “A study of non-performing
assets and its impact on Banking sector”. Journal of
Research 2017; 3(1).
6. Punjab National Bank’s. “Corporate Presentation”
https://www.pnbindia.in/.
Date of Submission: 2019-11-04
Date of Acceptance: 2018-12-09

• Bank has to thoroughly analyzing the repaying

capacity that companies and the owners has then
provide loans to big companies
• Should not provide loans to the big companies that are
facing losses and are about to shut down.
• Do conducting field study and then relying completely
on project report.
• Banks should observe how the loans are spent , after
granting loans. Many willful defaulters are spending
the loans unproductively which will not help to grow
business in anyway
• It is good to display the list of defaulters publicly. This
will cause fear and acts as a deterrent.
• Banks should observe the capacity of the company
continuously, after granting loan and should be able
to assess whether it is about to bankrupt. In this way,
banks can sell the assets before the loans become NPA.

Apart from this there are several government policies

which help banks in recovering from NPA. For solving the
problem of increasing NPAs bank should remain alert and
up to date while providing loans.

Reference
1. Devi Suman. “Non-performing Assets- A study of
Punjab National Bank”. International research journal
of management and commerce, 2015; 2(6).
2. Rao Mayur, Patel Ankita. “A study on non-performing