Non-Performing Assets: A Comparative Study of

SBI & ICICI Bank from (2014-2017)

INTRODUCTION

The Indian banking sector has undergone a drastic change and has
evolved considerably over several decades. While banks have increasingly
become more and more profitable in terms of higher revenues, attracting foreign
capital and diversifying their operations, they are also suffering from major
issues such as compromised asset quality, capital inadequacy and stressed
balance sheets. This has affected the performance of the banking sector and has
raised questions about its sustainability. Today profit is a sign of vitality and
success in a competitive scenario. It ensures survival and growth and can
eventually become the only parameter for performance evaluation. NPA
provisions are one of the major determinants of profit. Hence, for a bank, NPA
has become very significant.

OBJECTIVES
 To examine and compare the NPA trends of State Bank of India and ICICI
for past four years.
 To list the causes of the occurrence of NPA in both the banks.

 To compare the Total Advances, Net Profit, Gross NPA & Net NPA of State
Bank of India and ICICI BANK.
 To check whether there exist any linear relationship between Net profit and
Net NPA in case of both the banks.

LITERATURE REVIEW

Dr. Ganesan & R.Santhanakrishnan in their research paper „NON-

PERFORMING ASSETS: A STUDY OF STATE BANK OF INDIA‟ have
made an attempt to examine the non-performing assets of State Bank of India
over the past 10 years beginning from financial year 2002 to the financial year
2012. The researchers in this paper aimed to study the sources of deployment of
funds for the chosen bank. They examined the gross and the net NPA of the
bank and investigated the impact of NPA on the profitability of the bank.
They‟ve also suggested measures to improve NPA effectively in SBI.

They have made use of both primary and secondary data in this research.
SBI Annual reports and bulletins were made use of. The researchers have
revealed the sources of working funds for SBI which include deposits,
borrowings, reserves and surpluses & share capital. They‟ve analysed the trends
of each of the source over the past 10 years. They have shown the net and the
gross NPA tables and it has been revealed that SBI‟s

management of gross NPA is spectacular. The gross NPA slipped down from 9
in 2002-03 to 2.8 in 2008-09 and according to international standards the gross
NPA must not exceed 2 to 3%.
 The paper‟s results and conclusion have been in favor of SBI as State
Bank of India has very well managed to keep its non- performing assets under
control. This may be a result of strict watch on various internal and external
factors that could have hampered the overall growth of the bank.

Vaibhavi Shah and Sunil Sharma in their research paper titles as A

COMPARATIVE STUDY OF NPA IN ICICI BANK AND HDFC
BANKhave made an attempt to study the non-performing assets of ICICI and
HDFC bank. Since, both the banks belong to the private sector of the Indian
Banking industry, they aimed at comparing the NPAs and hence the overall
growth of the selected banks.

This paper aimed to know the operation of the bank in lending and credit
policy and it also suggested the steps that should be taken to reduce NPA for the
banks. Next they gave the introduction of NPA and detailed the reasons behind
the rise in the NPAs.

They analyzed the gross and the net NPA of both the banks with the help
of the table and respective graphs. Comparison was based on the past 5 years
from financial year 2010-11 to financial year 2014-15. Gross NPA for ICICI
Bank was impressive as it managed to maintain its NPA near to 3% according to
international standards. On the other hand, HDFC‟s performance was even
better as its gross NPA values were near to 1% and net values of NPA were all
less than 1%. So, the researchers conclude the paper stating that although both
the banks are doing a great job, HDFC bank is doing exceptionally well.
 D.JAYAKKODI in her research paper titled- A STUDY ON NON
PERFORMING ASSETS OF SELECT PUBLIC AND PRIVATE SECTOR
BANKS IN INDIA aimed to examine and compare the Gross NPAs and Net
NPAs of select Public and Private Sector Banks. This paper consists of four
Public Sector Banks-State Bank of India, Punjab National Bank, Bank of
Baroda, Bank of India and four Private Sector Banks- ICICI Bank, HDFC Bank,
AXIS Bank, and federal Bank. The study is carried out on the basis of data for
the period of 5 years from 2010-11 to 2014-15. Various statistical tools namely
mean, standard deviation and coefficient of variance were used in the study.

It was realized that Public Sector Banks have higher NPA ratio as compared to
Private Sector Banks over the period of the study.

Gross and Net NPAs ratio has shown an increasing trend in selected Public
Sector Banks over the period of study.

It was observed that the Gross NPA ratio has shown a declining trend in Private
Sector Banks. It was observed that Net NPA ratio has shown an increasing trend
in selected private sector banks over the period of study.

Priyanka Mohnani and Monal Deshmukh, in their paper titled as A

Study of Non-Performing Assets on Selected Public and Private Sector
Banks aimed to study the trends in NPA Level and to highlight the NPAs
position of selected PSB‟s and Private Banks. They are also focused on
assessing the comparative position of NPA in selected PSBs & Private banks
and to assess the variation of NPA ratio in selected PSBs & Private banks.
Selected PSBs are SBI & PNB, selected private banks are HDFC &ICICI bank.
For their study, they focused on secondary data and it has been collected using
annual report of Reserve Bank of India publication. In their study, measures of
central tendency, frequency distribution, Standard Deviations, coefficient of
variation and test have been used to analyze and interpret the data. Their study
focused on examining the various aspects of NPAs in PSBs & Private banks of
India (selected banks). Their study covers the period from 2002-03 to 2011-
2012. To study NPA ratio variation data over the year 2011-2012 has been
analyzed.

To be concluding, Gross NPAs ratio of PNB is less and it has been

reduced over the period in comparison to SBI. On the other side as far as
Private Banks are concerned HDFC has better performance in comparison to
ICICI. So, it is very necessary for bank to keep the level of NPA as low as
possible. Because NPA is one kind of obstacle in the success of bank and affects
the performance of banks negatively so, for that the management of NPA in
bank is necessary.

V.R SINGH in his paper titled A Study of Non-Performing Assets of

Commercial Banks and its Recovery in India has aimed to study the status of
Non-Performing Assets of Indian Scheduled Commercial Banks in India and
their impact on the banks. He also tried to uncover the channels through which
recovery of NPA can be done. He provided the readers with some suggestions to
manage NPA in near future effectively. The data collected is mainly secondary
in nature. Some of the major findings were

 NPAs as a Percentage of Net Advances which was lowest 1.0 % in 2007-08

& 2008-09 and highest 5.5 % in 2001-02. It was 2.2 % in 2013-14.
 The average Percentage of Net NPAs during 2001-02 to 2013-14 was around
2.0%.
 Ineffective recovery, willful defaults and Defective lending process are the
important factors which are
 responsible for the rise of NPAs in banks.

RESEARCH METHODOLOGY

The present study is based on secondary data analysis. The data has been
collected from various web sources like annual reports of respective banks,
information bulletins and journals.

For analyzing the data collected, correlation analysis using SPSS has been done
and to compare various parameters, charts and tables have been made use of.

Here, NPA is the independent variable and net profit is the dependent variable.
So we see if due to any changes in the net NPA, the net profits change or not, if
yes, whether positively or negatively.

DATA ANALYSIS

In the below section, various parameters related to NPA are compared and
analyzed.
Firstly, the total advances, net profits, gross NPA and net NPAs have been
compared for both the banks.
YEA NET GROSS
R TOTAL ADV. PROFIT NPA NET NPA

ICIC ICIC
SBI ICICI SBI I SBI ICICI SBI I

10,50
2014 1,578,277 338,703 10,891 9,810 61,605 6 31,095 3,298

15,09
2015 1,692,211 387,522 13,102 11,175 56,725 5 27,591 6,256

25,72
2016 1,870,261 435,264 9,951 9,726 98,173 1 55,807 13,297

13,29
2017 1,896,887 464,232 10,484 9,801 112,343 7 58,277 25,451

Table-1
 CONCEPTUAL FRAMEWORK
PROFILE OF SBI

The State Bank of India popularly known as SBI is one of the leading
banks of India. The State Bank Group, with over 16000 branches provides a
wide range of banking products in India and overseas, including products aimed
at NRIs. Its headquarter is at Mumbai. SBI has 14 Local Head Offices that are
located at important cities throughout the country. It has also 130 branches out
of the country. It has a market share of about 20% in deposits and loans among
Indian commercial banks. The State Bank of India was constituted on 1st July
1955, pursuant to the State Bank of India Act, 1955 for the purpose of creating a
state -partnered and state-sponsored bank. The State Bank of India's is largest
bank with subsidiaries and joint ventures outside India, including Europe, the
United States, Canada, Mauritius, Nigeria, Nepal, and Bhutan. The Bank has the
largest retail banking customer base in India. Due to its importance in Indian
banking sector, SBI has been selected from amongst the public sector banks for
the present study.

PROFILE OF ICICI
 ICICI Bank is major banking and financial services organization in India.
It is the second largest bank in India and the largest private sector bank in India
by market capitalization. Its headquarter is at Mumbai. The Bank has 2,533
branches and 6,800 ATMs in India. The Bank offers a wide range of banking
products and financial services to the corporate and retail customers. It also
provides services in the areas of venture capital investment banking, asset
management and life and non-life insurance. ICICI Bank's equity shares are
listed in India on Bombay Stock Exchange (BSE) and the National Stock
Exchange (NSE) and its American Depositary Receipts (ADRs) are also listed
on the New York Stock Exchange (NYSE). Due to its significant role in Indian
banking sector, ICICI Bank has been selected in the study from amongst the
private sector banks.

CAMEL FRAMEWORK
In the 1980s, CAMEL rating system was first introduced by U.S.
supervisory authorities as a system of rating for on-site examination of banking
institutions. This rating ensures a bank’s healthy conditions by reviewing
different aspects of a bank based on variety of information sources such as
financial statement, funding sources, macro-economic data, budget and cash
flow. In fact, CAMEL is an acronym for five components of bank safety and
soundness:

C - Capital Adequacy,


A - Asset Quality,


M - Management Efficiency,


E – Earnings Ability,

L – Liquidity position.

CAPITAL ADEQUACY-
It is an important parameter for a bank to conserve and protect stakeholders,
confidence and prevent the bank from bankruptcy. An institution’s capital
adequacy depends on its growth plans, interest and dividend practices, ability to
control risks and economic environment. Reserve Bank of India (RBI)
prescribes banks to maintain minimum Capital to Risk Weighted Assets Ratio
(CRAR) of 9% with regard to credit risk, market risk and operational risk on an
ongoing basis, as against 8% prescribed in BASEL documents.

ASSET QUALITY-

It covers an institutional loan’s quality which reflects the earnings of the

institution. It is an indicator of healthiness of banks against loss of value in the
assets as asset impairment risks the solvency of banks. The asset quality is
assessed with respect to the level of non-performing assets, adequacy of
provisions, distribution of assets etc. Asset quality is an indicator of an
institution’s investment policies and practices.

MANAGEMENT EFFICIENCY-
It refers to the capability of the management to ensure the safe operation of the
institution as it complies with the necessary internal and external regulations. It
reflects the capability of management to properly react to financial stress as well
as to control and mitigate risks of the institution’s daily activities.

EARNING QUALITY-

It represents the sustainability and growth of future earnings of an institution as

well as its competency to maintain quality and retain competitiveness. Earnings
quality is determined by assessing profitability, growth, stability, net interest
margin, net worth level and the quality of the institution’s existing assets.
LIQUIDITY POSITION-
It is a measure of an institution’s short-term solvency which enables it to
procure sufficient funds either by increasing liabilities or by converting its
assets to cash quickly at a reasonable cost. It is determined by assessing interest
rate risk sensitivity, dependence on short-term volatile resources and ALM
technical competence.

DATA PRESENTATION AND ANALYSIS

PARAMETERS USED

Against the backdrop of CAMEL framework, the following parameters

have been used in this study to evaluate the performance of the respective banks
under study:

Capital Adequacy Ratio = (Tier I Capital + Tier II

Capital)/ Risk weighted Assets Net NPA to Net Advances
= Net NPA/Net Advances X 100 Return on Assets = Net
Profit/ Assets X 100

Return on Net Worth = Net Profit/ Net

Worth X 100 Credit Deposit Ratio =
Total Loans/ Total Deposits X 100 Debt
Equity Ratio= Total Debt/ Shareholders
Fund

Net Interest to Funds Ratio = (Int. Earned – Int.

Expended) / Total Funds X 100 Return on Equity = Return
 to equity shareholders/ Equity Shareholders Fund X 100
Current Ratio = Current Assets/ Current Liabilities Quick
Ratio = Quick Assets/ Quick Liabilities

DATA ANALYSIS

Table I: Comparative Analysis of Capital Adequacy Ratio (CRAR)

Bank 2011- 2012- 2013- 2014- 2015- Mea
s Ratio 12 13 14 15 16 n
SBI CRAR 13.86 12.92 12.96 12.00 13.12 12.9
 (%) 7
ICIC CRAR 17.7
I (%) 18.50 18.70 17.70 17.00 16.60 0
Source: Annual Reports of SBI and ICICI from 2011-12 to 2015-16

Table I demonstrates that the Capital Adequacy Ratio (CRAR) of both the
banks under study are highly satisfactory and well above the standard set by
RBI for Indian banks. The highest CRAR of both SBI and ICICI were registered
in the year 2011-12 and were 13.86% and 18.50% respectively, whereas the
lowest CRAR of SBI was 12% in the year 2014-15 and that of ICICI was
16.60% in the year 2015-16. From the table, it is clear that the mean CRAR of
ICICI Bank (17.70%) is higher than that of SBI (12.97%) for the study period,
which implies that the CRAR of ICICI Bank is 4.73% more than that of SBI.

Table II: Comparative Analysis of Net NPA to Net Advances

2011- 2012- 2013- 2014- 2015- Mea
Banks Ratio 12 13 14 15 16 n
Net NPA to Net Adv
SBI (%) 1.82 2.10 2.57 2.12 3.81 2.48
Net NPA to Net Adv
ICICI (%) 0.73 0.77 0.97 1.61 2.98 1.41
Source: Annual Reports of SBI and ICICI from 2011-12 to 2015-16

The Net NPA to Net Advances (%) of SBI and ICICI Bank for the study
period is exhibited in Table II. Net NPA to Net Advances is an important
parameter for determining the capital adequacy and asset quality of the firm. It
is a ratio of net Non-performing Assets (NPA) to the Net Advances of an
enterprise. The lower the Net NPA level to Net Advances better is the coverage
of risks from the perspective of banks. The highest Net NPA to Net Advances of
both SBI and ICICI were 3.81 and 2.98 respectively in the year 2015-16,
whereas the lowest Net NPA to Net Advances of SBI and ICICI was registered
in the year 2015-16 and were 1.82% and
0.73% respectively. From the table, it is clear that the mean Net NPA to Net
Advances of ICICI Bank (1.41%) is lower than that of SBI (2.48%) for the
study period, which implies that ICICI Bank has lower level of Net NPA to Net
Advances than that of SBI.
Table III: Comparative Analysis of Return on Assets (%)
Bank 2011- 2012- 2013- 2014- 2015- Mea
s Ratio 12 13 14 15 16 n
Return on
SBI Assets (%) 0.88 0.91 0.65 0.76 0.46 0.73
ICIC Return on
I Assets (%) 1.50 1.70 1.78 1.86 1.49 1.67
Source: Annual Reports of SBI and ICICI from 2011-12 to 2015-16

Return on Assets (%) of SBI and ICICI for the study period is exhibited
in Table III. Return on Assets is a measure of asset quality and management
efficiency of an institution and the higher the ratio, better is said to be the
performance of the firm.

It is quite clear from this table that for both the banks under study, Return
on Assets is at a very low level. The highest Return on Assets (%) of SBI was
0.91% in 2012-13 and that of ICICI was 1.86% in the year 2014-15, whereas the
lowest Return on Assets (%) of both SBI and ICICI was registered in the year
2015-16 and were 0.46% and 1.49% respectively. It is also evident that the
mean Return on Assets (%) of ICICI Bank (1.67%) is higher than that of SBI
(0.73%) for the study period, which implies that ICICI Bank scores over SBI in
terms of return on assets.

Table IV: Comparative Analysis of Return on Net Worth (%)

2011- 2012- 2013- 2014- 2015- Mea
Banks Ratio 12 13 14 15 16 n
Return on Net Worth 10.9
SBI (%) 13.94 14.26 9.20 10.20 6.89 0
Return on Net Worth 12.3
ICICI (%) 10.70 12.48 13.40 13.89 11.19 3
Source: Annual Reports of SBI and ICICI from 2011-12 to 2015-16

Table IV demonstrates that the Return on Net Worth (%) of both the
banks under study is fluctuating over the study period. Return on Net Worth is
the ratio of net profit to the net worth of an enterprise and is an important
parameter in determining the profitability and management efficiency of an
enterprise. The higher the return on net worth better is the performance of the
enterprise.

From the table, it is clear that the highest Return on Net Worth of SBI i.e.
13.94% was registered in the year 2011-12 whereas in case of ICICI Bank, the
highest return on Net Worth i.e. 13.89% was registered in the year 2014-15. The
lowest return on Net Worth of SBI was 6.89% in 2015-16 and in case of ICICI
Bank, it was 10.70% in the year 2011-12. The mean Return on Net Worth of
ICICI Bank (12.33%) is higher than that of SBI (10.90%) for the study period,
which implies that ICICI Bank has scores over SBI in terms of Return on Net
Worth by 2.43%, indicating a superior performance on part of ICICI Bank over
its counterpart for the period under study.

Table V: Comparative Analysis of Credit Deposit Ratio (%)

2011- 2012- 2013- 2014- 2015-
Banks Ratio 12 13 14 15 16 Mean
Credit Deposit Ratio
SBI (%) 82.14 85.17 86.64 84.47 83.56 84.40
Credit Deposit Ratio 101.4
ICICI (%) 97.71 99.25 100.71 104.72 105.08 9
Source: Annual Reports of SBI and ICICI from 2011-12 to 2015-16

Table V exhibits the Credit Deposit Ratio (%) of both the banks for the
last five years from 2011-12 to 2015-16. Credit Deposit Ratio denotes the
proportion of loan assets created by a bank from the deposits received. The
higher the credit deposit ratio, better is the performance of bank.

It is clear from the table that the Credit Deposit Ratio of ICICI Bank is
showing an increasing trend, whereas in case of SBI, it is more or less stable
throughout the study period. The highest Credit Deposit Ratio of SBI was
86.64% in 2013-14 and that of ICICI was 105.08% in 2015-16 105.08%,
whereas the lowest Credit Deposit Ratio of both SBI and ICICI was registered
in the year 2011-12 and were 82.14% and 97.71% respectively. It is also evident
from the table that the mean Credit Deposit Ratio of ICICI Bank (101.49%) is
higher than that of SBI (84.40%) for the study period, which implies that ICICI
Bank has created more loan assets from its deposits as compared to SBI.

Table VI: Comparative Analysis of Debt Equity Ratio

2011- 2012- 2013- 2014- 2015- Mea
Banks Ratio 12 13 14 15 16 n
13.7
SBI Debt Equity Ratio 13.94 13.87 13.34 13.87 13.55 1
ICICI Debt Equity Ratio 6.55 6.57 6.65 6.64 6.86 6.65
Source: Annual Reports of SBI and ICICI from 2011-12 to 2015-16

Debt Equity Ratio of SBI and ICICI Bank for the study period are
exhibited in Table VI. Debt Equity Ratio is a measure of the solvency and
management efficiency of an institution and is determined as the ratio of total
debt to shareholders fund.

From the table, it is clear that both the banks have maintained a stable
Debt Equity Ratio over the period under study. The highest Debt Equity Ratio of
SBI was 13.94 in 2011-12 and in case of ICICI Bank, it was 6.86 in the year
2015-16, whereas the lowest Debt Equity Ratio of SBI was 13.34 in 2013-14 .

INTERPRETATION OF THE TABLE

 The table is comparing Total advances with NET Profit, Gross NPA &
Net NPA of SBI and ICICI Bank. With the help of this table we can get
knowledge about growing performance of both the banks. We can see that on
one side total advances given by SBI and ICICI Bank and Net Profits are
increasing continuously since 2014, which shows that banks are performing
very well. But for SBI, Gross NPA & Net NPA is also increasing such that its
gross NPA in 2014 has been 61,605 and in 2017 it increased to 112,343. This
shows that SBI‟s performance is declining due to mismanagement of bank.
ICICI bank shows the similar trends as its gross and net NPAs are increasing as
well since 2014.

But, if we observe carefully and compare the parameters for both the
banks with each other, we see that ICICI bank is performing much better as
compared to SBI as in 2017 net NPA for SBI is 58,277 and for ICICI bank its
mere 25,451. Similarly, for Gross NPA, SBI stands at 112,343 in 2017 and at
the same time, ICICI is at 13.297.
Secondly, the examination of the NPA trends for both the banks for the
last 4 years has been done.

PERCENTAGE OF GROSS
YEAR NPA
SBI ICICI
MARCH 2014 4.95 3.03
MARCH 2015 4.25 3.78
MARCH 2016 6.50 5.21
MARCH 2017 6.90 7.89
Table-2
PERCENTAGE OF GROSS NON-PERFORMING ASSET
 10
ICICI
5
SBI
0

2014 2015 2016 2017

SBI ICICI

INTERPRETATION OF THE TABLE

The above table compares the values of gross NPA for both the banks-
SBI and ICICI bank. The x-axis show the years and on y-axis amount of gross
NPA is measured. It is observed that for 3 consecutive years-2014, 2015 and
2016, the performance of ICICI bank is showing an upwards trend as compared
to that of SBI. However, in 2017, the gross NPA value of ICICI bank shot up to
4.98 whereas SBI improved from 3.71 in 2016 to 3.81 in 2017.

PERCENTAGE
YEAR OF NET NPA
 ICIC
SBI I
MARCH 2014 2.57 0.97

MARCH 2015 2.12 1.61

MARCH 2016 3.81 2.67

MARCH 2017 3.71 4.89

Table-3
PERCENTAGE OF NET NON-PERFORMING ASSETS

4
ICICI
2
SBI
0

2014 2015 2016 2017

SBI ICICI

INTERPRETATION OF THE TABLE

The above table compares the values of net NPA for both the banks- SBI
and ICICI bank. The x-axis show the years and on y-axis amount of net NPA is
measured. It is observed that for 3 consecutive years- 2014, 2015 and 2016, the
performance of ICICI bank is showing an upwards trend as compared to that of
SBI. However, again in 2017, the net NPA value of ICICI bank increased to
7.89, SBI being on 6.90. It is also seen that SBI has improved from 2016 to
2017, it has managed to reduce its non- performing assets whereas the condition
of ICICI bank has worsened.

Thirdly, we would analyze the relationship between Net profit and Net NPA in
case of both the banks
.
HYPOTHESIS:

H0 - There is no linear relationship between Net

Profit and Net NPA; ƍ = 0 H1 - There is linear
relationship between Net Profit and Net NPA; ƍ ≠ 0

(For the current study, the testing of population correlation coefficient was used
to either reject or do not reject the null hypothesis. 5 % sig level was used, i.e.
α/2 = 0.25)

STATE BANK OF INDIA

NET
YEAR NET PROFIT NPA
MARCH 108
2014 91 31095

MARCH 131
2015 02 27591

MARCH 995
2016 1 55807

MARCH 104
2017 84 58277

Correlation coefficient = - 0.786

Descriptive
Statistics
Std.
Mean Deviation N
Net 11107.0000 1384.57527 4
Profit

Net 43192.5000 16087.51129 4

NPA

Correlations

Net
Profit Net NPA

Net Pearson Correlation 1 -.786

 Profit
Sig. (2-tailed) .214

N 4 4

Net Pearson Correlation -.786 1

NPA
Sig. (2-tailed) .214

N 4 4

LOGO

INTERPRETATION OF THE VALUE

 The correlation coefficient between net profit and net NPA is -0.786
indicating the negative relationship between the two i.e. a rise in the net NPA
shall lead to a fall in the net profits. It shows there is high negative correlation
between the variables. In order to check if this result is significant, we test the
hypothesis stated above using a t-test. The test statistic is given by:

T.S. - r n−2 ∼ n-2

1−r2
The test statistic so calculated came out to be 1.798 which lies in the acceptance
region as the critical value for the 2 tailed t- test was 4.303. Hence we do not
sufficient evidence to reject the null hypothesis. Hence we say that the
correlation coefficient is not significant and there is no significant linear
relationship between the net profit and net NPA.

ICICI BANK

YEAR NET PROFIT NET NPA

MARCH
2014 9810 3298

MARCH
2015 11175 6256

MARCH
2016 9726 13297

MARCH
2017 9801 25451
 Correlation coefficient
= -0.39

INTERPRETATION OF THE VALUE

As we observe that the coefficient of correlation is equal to -0.39, it

means that there is a moderate degree of negative correlation between net profit
and net NPA. The negative correlation coefficient between net profit and net
NPAs means an increase in net NPAs will decrease net profit of the bank. It is a
logical conclusion because profitability of a bank depends upon the recovery of
loans and existence of bad loan will jeopardize it. But to check if this is a
significant value and that if it applies to the population as well we test the
hypothesis. The test statistic came out to be 0.598 which lies in the acceptance
region as the critical value for the t-test is 4.303. Hence, we have no evidence to
reject the null hypothesis. So we can infer there is no significant linear
relationship between net profits and net NPA for ICICI bank.

Correlations

profit NPA
Pearson
Net Correlation 1 -.391
Profit Sig. (2-tailed) .609
N 4 4
Pearson
Net Correlation -.391 1
NPA Sig. (2-tailed) .609
N 4 4

Descriptive Statistics

Mean Std. Deviation N

Net
Profit 10125.7500 700.39293 4
Net
NPA 12075.5000 9854.05414 4

The insignificant correlation coefficients in case of both the banks may be due
to the fact that there are factors other than non-performing assets that impact the
profitability of any bank. Some of those factors are ROA (Return on Assets),
ROE (Return on Equity), Capital Adequacy Ratio, Net interest margins etc.
There might be a case wherein the NPAs are rising but the rise in net interest
margins is more as compared to the rise in NPAs and hence the impact of net
interest margins is much stronger on the net profits of the bank.

CAUSES OF NPA

 One very important reason behind the rising NPA is the relaxed lending
norms especially for corporate honchos when their financial status and credit
rating is not analyzed properly.

 Public Sector banks provide around 80% of the credit to industries and it is
this part of the credit distribution that forms a great chunk of NPA.
 Public sector lending and extending loans in agriculture sector has a
substantial contribution to the rising NPAs of the banking industry.
 Inappropriate project handling, ineffective management, lack of adequate
resources, day to day changing govt. Policies produce industrial sickness.
Hence, the banks finance those industries that ultimately give them a low
recovery of their loans reducing their profit and liquidity.

NET NPA

Net NPAs are those type of NPAs in which the bank has deducted the provision
regarding NPAs. Net NPA shows the actual burden of banks. Since in India,
bank balance sheets contain a huge amount of NPAs and the process of recovery
and write off of loans is very time consuming, the banks have to make certain
provisions against the NPAs according to the central bank guidelines. It can be
calculated by following:
CAUSES FOR NPA

The factors attributed for the cause of NPA may be divided into Internal and
External factors. Internal factors include improper credit appraisal, Lack of
effective follow up, Willful default/Fraud, Lack of post credit supervision,
Absence of security, obsolete technology. External factors include Natural
calamities, Industrial sickness, and Labour problems of borrowed firm.

FINDINGS
The following findings were drawn from the above data analysis:

The total advances have shown an upwards trend for both SBI and ICICI
BANK.

Net profits for SBI have been fluctuating over the years whereas in case of
ICICI bank it has largely been consistent to around 9000 crore.

In the case of % Gross NPA, performance of public sector bank- SBI is
doing better as compared to private sector bank –ICICI bank.

In case of % net NPA also, performance of SBI is observed to be improving
over the years and hence creation of less non- performing assets as compared
to ICICI bank. Percentage net NPA for ICICI Bank is observed to be
continuously rising.

The coefficient of correlation for SBI was found to be -0.78 that is high
negative correlation between net profit and net NPA of the bank. This means
that as NPA is increasing, the net profit will decrease.

Similarly, coefficient of correlation for ICICI bank was -0.39 that is
moderate negative correlation between net profit and net NPA.

The correlation coefficients were found to be insignificant i.e. there is no
linear relationship between the net profits and net NPA and there are other
factors which impact the net profits of the bank much strongly.
CONCLUSION

The management of nonperforming assets is a daunting task for every bank in

the banking industry. The very important reason and necessity for management
of NPA is due to their multi-dimensional effect on the operations, performance
and position of bank. Results of study shed light on the status of non-performing
assets of SBI and ICICI Bank.

The present study concludes that non- performing assets is a biggest

challenge faced by both ICICI bank and State Bank of India as it leads to
downfall in liquidity balance of the banks and creates bad debts on them.
Profitability is being affected due to the fluctuations in NPA levels over the
years. On comparing the two banks based on the effect on its profitability, SBI
has higher NPAs as compared to ICICI bank because of its public nature. Since
SBI is a public sector bank, it is more vulnerable to give up on the returns of the
loans extended to the general public. This is the reason for high NPAs in SBI.
One other reason for high NPAs can be a sharp rise in the provisioning of the
bad loans. Besides rising NPA, SBI has managed to keep its profits consistent,
which depicts that the overall management of the resources of the bank is
partially better. On the other hand, the net NPAs for ICICI Bank are
continuously increasing since 2014 but as compared to SBI they are in a much
better condition. The profits of ICICI bank also did not experience any sharp
rise or fall. The correlation coefficient is -0.78 which depicts high degree of
negative correlation. On the other hand ICICI has a moderate degree of
correlation i.e. -0.39. But since it was found that these coefficients were
insignificant, it widens the scope for further detailed studies by identifying the
impact of various other factors on profits of a bank.

SUGGESTIONS

 The banker should take utmost care by ensuring that the enterprise or
business for which a loan is sought is a sound one and the borrower is
capable of carrying it out successfully, he should be a person of high
integrity, credibility and good character.

 The banks, instead of providing loans to small farmers, should make

provisions to grant them insurance policies for crop protection and income
security.

 Government should make considerate level of investment on the upliftment

of the farm equipment so that multiple farmers can make use of those
facilities and there need not be any compulsion for the farmers to take loans
in order to grow their crops.

 Banker should examine the balance sheet which shows the true picture of
business will be revealed on analysis of profit/loss a/c and balance sheet.
While extending loans, banks should examine the purpose of the loan. Banks
must grant loan for productive purpose only.
BIBLIOGRAPHY

[1]. Dr. D. Ganesan R.Santhanakrishnan, “Non-Performing Assets: A Study of

State Bank of India” Asia Pacific Journal of Research,

Volume: I, Issue: X, October 2013.

[2]. D.Jayakoddi and Dr.P.Rengarajan, “A Study on Non- performing Assets of
selected public and private sector banks in India” ,

Intercontinental Journal of Finance Research Review ISSN: 2321-0354 -

Online ISSN: 2347-1654 - Print – Impact of Factor: 1.552 VOLUME 4,
ISSUE 9, and September 2016.

[3]. Vaibhavi Shah and Sunil Sharma, “A Comparative Study of NPA in

ICICI Bank and HDFC Bank”, Avinava national Monthly Referred
Journal of Research in Commerce and Management. Vol.5, Issue 2. Feb.
2016.
[4]. Dr. Biswanath Sukul, “Non-Performing Assets (NPAs): A Comparative
Analysis of Selected Private Sector Banks”, International

Journal of Humanities and Social Science Invention ISSN (Online):

2319 – 7722, ISSN (Print): 2319 – 7714 www.ijhssi.org ||Volume 6
Issue 1||January. 2017 || PP.47-53.

Types of NPA

Gross NPA

Gross NPA is an advance which is considered irrecoverable, for bank has made
provisions, and which is still held in banks' books of account. Gross NPAs are
the sum total of all loan assets that are classified as NPAs as per RBI Guidelines
as on Balance Sheet date. Gross NPA reflects the quality of the loans made by
banks. It consists of all the nonstandard assets like as sub-standard, doubtful,
and loss asset. It can be calculated with the help of following ratio:
Gross NPAs Ratio = Gross NPAs / Gross Advances

Net NPA

Net NPAs are those type of NPAs in which the bank has deducted the provision
regarding NPAs. Net NPA shows the actual burden of banks. Since in India,
bank balance sheets contain a huge amount of NPAs and the process of recovery
and write off of loans is very time consuming, the banks have to make certain
provisions against the NPAs according to the central bank guidelines. It can be
calculated by following:
Net NPAs = Gross NPAs – Provisions / Gross Advances – Provisions