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International Journal on Emerging Technologies 10(2): 371-375(2019)

ISSN No. (Print): 0975-8364

ISSN No. (Online): 2249-3255

Non-Performing Asset of Public and Private Sector Banks in India: A

Descriptive Study
1 2
Sushendra Kumar Misra and Rohit Rana
1
Registrar & Head-Center of Continuing Education,
Dr.
2
B R Ambedkar National Institute of Technology Jalandhar, Punjab, India.

(Corresponding author: Sushendra Kumar Misra)

(Received 19 May 2019, Revised 30 July 2019 Accepted 16 August 2019)
(Published by Research Trend, Website: www.researchtrend.net)

ABSTRACT: In each country the banking system plays a paramount role in the development of
th
its economy, and Indian banking sector is not exception. It will be the 5 largest banking
rd
sector by 2020 and 3 largest sector in the year 2025. A Non Performing Asset (NPA) is a
serious concern for the liquidity position of the bank. It can destroy the strong financial
position of the banks and has the potential to harm the investor also. In India the private
sector banks and as well as public sector banks are facing this problem. An amount of
approximately Rs. 9,49,279 corers was found as the aggregate amount of gross NPA in the
case of schedule commercial bank. Therefore, the current study has been conducted to
understand the present condition of non-performing asset of public and private sector banks in
India. The present study is a descriptive in nature and Ratio analysis used for analysis the
trend of NPA. Correlation has been used for testing the hypothesis. The results of the study
show that the asset quality management of public sector bank is insignificant as compared to
other banks and also reveals that the financial burden on public sector banks is more as
compared to private sector banks. The outcome of the study is beneficial to the banking
industry to check the impact of NPA on their profitability and take corrective measures so that
impact of NPA on the Profitability of the banking sector can be minimized.

Keywords: Gross NPA, Net NPA, Public Sector Bank, Private Sector Bank.
remains unpaid for more than 90 days
I. INTRODUCTION
[5].Economics development of the country is
After the 1991 introduction of LPG policy, the depends on the banking sector in a very big
Indian banking system has received number way. But in recent times this industry has
of revolutionary changes and reforms. Before been facing some serious threat. This is one
the introduction of LPG policies it was non-performing asset. The banks have two
observed that banks were loaded with a vast major function lending and deposit.
amount of Non-Performing assets (NPA's) and Accepting deposit do not involve any risk
it was not mentioned in their balance sheets. whereas lending always involves risk as the
The banks had gone very weak. Balance borrower might not return the amount of loan
sheets were hiding more than what they within the said time. Once an asset stops
revealed. The objectives of liberalization generating income for the bank it becomes a
policy were to remove the unnecessary non-performing asset. The loaned out asset
regulation from the banking system and of the bank if returned regularly
reduce much of regulations. The policy was
focused of self regulation. The thought of
NPAs came into the forefront as Reserve
Bank of India (RBI) introduced the prudential
norms on the recommendations of the
Narsimham committee in the year 1992-93.
However, these prudential norms were
considered by RBI with statement that “An
asset is considered as Non Performing if
interest or installment of principal due
 NPA. Asset can be classified into four
and on time in the form of interest or
categories: i) Standard asset, which does not
principle by the customer then it is an
hold more than normal risk and makes them
performing asset. In contrast if the
performing asset. ii) Substandard asset are
customers are unable to pay it becomes as a
those assets in which NPA is for a period less
non-performing asset [1].
than or equal to 12 months. iii) If the NPA
A Recent report by care rating 2017 revealed
th exceeds 18 months period it becomes
that India has been ranked 5 on the list of doubtful asset. These assets are weak and
countries with high NPA and top BRICS
the profitability of the liquidation is very high.
nation9.9 % ratio. Gross NPA in India
iv) Lastly, Loss asset refers to those assets
expected to have a rise of RS 9.5 lakh crore
by March 2018. NPA is not good and can where NPA is more than 36 months [1].
result increasing of economy as happened in
the USA in the year 2008. Gross NPA shows the quality of the loans
made by banks. It included of all the
[1]. According to the Assocham-Crisil joint
nonstandard assets like as sub-standard,
study the GNPA in Indian banks are expected
doubtful, and loss assets and Net Non
to rise rupees 9.5 crores by March 2018.
Performing Asset refer to the sum of the non-
According to current scenario RBI norms, performing
any asset, which ceases to generate income
for more than 90 days is considered to be
Misra & Rana International Journal on Emerging Technologies
10(2): 371-375(2019) 371
loans less provision for bad and doubtful found that the PSB bank gives compulsory
debts. it reflect the actual burden of the lending to weaker section of society, where
bank. chance of recovery is negative [5].
Reasons of NPA: 1 Defaulter knows the loop There is a strong correlation of Net NPA and
hall of our legal system.2. Exploitation of RBI Net Profit in public sector and private sector
statement policy.3. Lack of proper banks. He also said that the compulsory
monitoring system.4. Lack of lending to priority sectors is one of the
entrepreneurship.5. Making a wrong problems for increasing NPA [6].
judgment while choosing a client.6. Loan Customer also feel that social and political
wavering schemes by the governments. pressure in form of priority sector lending
Impact of NPA: 1 Profitability of the bank 2. play a major role in increasing NPA [7]. The
Liquidity of the bank. 3. Cost of capital will political interference is one of the reasons for
goes up.4. Goodwill of bank.5. Wealth of account becoming NPA [8].
shareholders. Management and Control of NPA in private
sectors bank is more professional and
II. MATERIALS AND
expertise as compare to Public Sector Bank.
METHODS A. Literature They are making well plan sharp to recover
Review funds from borrower [9]. The public sector
banks should remain focused in Management
There is significant impact of NPA on Net
and Control of Non Performing Assets [10].
Profit of selected public sector banks. Study
India’s banking
said the NPA affect the Profitability and
financial soundness of the banks and affect
on profitability, which leads to reduce the
lending capacity of the banks [1}.In the
study, it is found that the level of NPA is
more in public sector bank as compare to
private sector bank. They also mentioned in
their study, the meaningful reasons for
increasing this problem [2], [3].
NPA is directly effecting on profitability of
Public Sector Bank. Study found that the
NPA level is increasing trend and negative
relationship between NPA and profitability of
the PNB. This all happened Because of
mismanagement and wrong choice of client
[4].
Management of private and foreign sectors
bank is more professional and expertise for
making a Plan to recover the funds. Study
system is considered by the presence of The study is descriptive in nature. The data
increasing Non-Performing Assets (NPAs) in has been taken in this study for last 10 years
public sector banks. Priority sectors NPA is (2009-10 to 2018-19). The secondary data
higher than that of the non-priority sector has been used in this study from the online
[11]. sources like money control, RBI websites,
Rbi reports. Ratio analyses were used to
B. Objective of the study
analyses the NPA. The data is presented
To study the level of NPAs in public and with the help of graph, charts and table etc.
private sectors bank in India, To study the Correlation used for testing the hypothesis.
relationship between the NPAs and profit of
PSB and PVSB in India, To study the E. Hypothesis Testing
reasons and impact of NPAs in India and To H1.There is significant relationship between
give the valuable suggestion to grab this Net NPA and Net Profit of Private sector
problem bank.
H0There is no significant relationship
C. Problem statement
between Net NPA and Net Profit of Private
The problem of NPA is increasing day by sector bank.
day. It also affects the profitability and H2.There is significant relationship between
liquidity of the banks and also harms the Net NPA and Net Profit of Public sector
creditworthiness of the borrower. Due to bank..
increasing of the problem NPA management H0There is no significant relationship
is very low of the Indian banks. This study between Net NPA and Net Profit of Public
analysis the level of NPA in public and sector bank.
private sectors banks and also judge the
F. Limitation of the study
NPA management of both sectors bank. It
Foreign banks are not included in this study.,
also analyses the relationship between the
Study cover only 10 years., NPA is changing
NPA and Net Profit of the public and private
trend every year financial result is different
sectors bank.
and Rural and cooperative banks are not
D. Sample included in this study.

III. RESULTS AND DISCUSSION

Table 1: NPA Ratio and Net Profit of Public sector Banks and Private sector banks.
Years NNPA Ratio GNPA Ratio NET Profit NNPA Ratio GNPA Ratio NET Profit
2009-2010 1.1 2.3 39256 1.0 3.0 13111.4
2010-2011 1.1 2.3 44900 0.6 2.5 17711.6
2011-2012 1.5 3.2 49513 0.5 2.1 22718
2012-2013 2.0 3.6 50582 0.5 1.8 28995.4
2013-2014 2.6 4.4 37018 0.7 1.8 33754.1
2014-2015 2.9 5.0 37540 0.9 2.1 38734.7
2015-2016 5.7 9.3 -17992 1.4 2.8 41313.72
2016-2017 6.9 11.7 -11388 2.2 4.1 42247
2017-2018 8.0 14.6 -85371 2.4 4.7 41879
2018-2019 5.2 12.6 -66608 1.6 3.7 27621
A. GNPA Ratio of Public Sector Bank (PSB) and Private
Sector Bank (PVSB)
NNPA Ratio
9
GNPA Ratio
8
16 7 Public
Sector
14 6
Banks
12 5
PUBLIC

4 Private
SECTOR
10 BANKS Sector
3
8 Banks
2
6 PRIVATE 1
4 SECTOR 0
BANKS

2009-10

2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19
2
0

represents better asset quality management

and high value of the ratio represents bad
asset quality management. The Gross NPA to
(Source: www.rbi.com)
Fig. 1. Gross advance ratio for the year 2009-10 to
2018-19 presented in above Fig. 2.
This ratio reveals about asset quality
management of banks. Low value of the ratio
represents better asset quality management
and high value of the ratio represents bad
asset quality management. The Gross NPA to
Gross advance ratio for the year 2009-10 to
2018-19 presented in above Fig. 1. While
analyzing the Fig. 1, it was found that from
2009- 2010 to 2014-15 public sector bank
shows an increasing trend with low rate.
However, from year 2015-16 to 2017-18 this
ratio shows an increasing trend at very high
rate that means it has a negative effect on
financial health of the bank. On contrary in
private sector bank this ratio shows a
decreasing trend from the year 2009 -10 to
2013-14. Moreover, in the year of 2014-15 to
2017-18 it shows increasing trend. On the
other side this ratio doubled from the year
2016-17 to 2017-18 that means it is not a good
sign. In 2018-19 both the sectors NPA ratio is
decreasing which shows NPA recovery is very
high in this year and financial health of the
banking industry is improving. Overall
analysis of the ratio shows that asset quality
management of private sector bank in good
condition compare to public sector bank.

B. NNPA Ratio of Public Sector Bank(PSB)

and Private Sector Bank(PVSB)
This ratio reveals about asset quality
management of banks. Low value of the ratio
(Source: www.rbi.com) Hypothesis Testing. H1. There is significant
Fig. 2. relationship between Net NPA and Net Profit
of private sector bank. H0 There is no
While analyzing the Fig. 1, it was found that significant relationship between Net NPA and
from 2009-2010 to 2014-15 public sector bank Net Profit of private sector bank.
shows an increasing trend with low rate. Interpretation: Table 2 indicates Net NPA and
However, from year 2015-16 to 2017-18 this Net Profit from the year 2009-10 to 2018-19 of
ratio shows an increasing trend at very high the public sector banks. The above results
rate that means it has a negative effect on depict that there is a highly positive
financial health of the bank. On contrary in correlation between the Net NPA and net
private sector bank this ratio shows a profit of the private sector bank. They are
decreasing trend from the year 2009-10 to highly positive correlate, which indicates that
2013-14. Moreover, in the year of 2014-15 to the net NPA increases on the other side net
2017-18 it shows increasing trend. On the profit also increases. So on this behalf our
other side this ratio doubled from the year hypothesis is accepted.
2016-17 to 2017-18 that means it is not a good H2.There is significant relationship between
sign. In 2018-19 both the sectors NPA ratio is Net NPA and Net Profit of Public sector
decreasing which shows NPA recovery is very banks.
high in this year and financial health of the H0There is no significant relationship
NPA
banking industry is improving. Overall between Net and Net Profit of Public
analysis of the ratio shows that asset quality sector banks.
management of private sector bank in good
condition compare to public sector bank.

Misra & Rana International Journal on Emerging Technologies

10(2): 371-375(2019) 373
Table 2. between the Net NPA and Net Profit of the
Public sector Banks. They are negatively
Net Profit (in
correlated, which indicates that on one side
Years NET NPA Crore)
the net NPA increases and on the other side
2009-10 6506 13111.4
2010-11 4432 17711.6 net profit decreases. The loan issuing policy
2011-12 4401 22718 of Public Sector Banks are not effective.
2012-13 5994 28995.4 Thus, on this behalf our null hypothesis is
2013-14 8862 33754.1 rejected.
2014-15 14128 38734.7 Findings:
2015-16 26677 41313.72
2016-17 47780 42247 1. GNPA ratio of Public sector bank is very
2017-18 64200 41879 high as compare to private sector bank. It
2018-19 67437 27621 shows that the asset quality management of
Results .512 Private sector bank is much better than the
Table 3. public sector bank.
2. NNPA ratio of Public sector is very high as
Years NET NPA Net Profit(in Crore)
compare to private sector bank. It shows that
2009-2010 29643 39256
2010-2011 36055 44900 the actual burden of public is increase year-
2011-2012 59391 49513 by-year high rate. On the other side private
2012-2013 90037 50582 sector bank it increase but constant rate
2013-2014 130635 37018 3. There is a high negative correlation
2014-2015 159951 37540
between the Net NPA and Net profit of the
2015-2016 320376 -17992
2016-2017 383089 -11388 public sector banks. It shows that there NPA
2017-2018 454500 -85371 is increasing their net profit is also
2018-2019 285122 -66608 decreasing.
Results -.884 4. There is a positive correlation between the
Net NPA and Net Profit of the Private sector
Interpretation: Table 3 indicates Net NPA and
banks. It shows that there NPA is increasing
Net Profit from the year 2009-10 to 2018-19 of
their net profit is also increasing.
the Private sector banks. The above results
show that there is highly negative correlation IV. CONCLUSION AND FUTURE SCOPE
The problem of NPA is a serious issue for the Increasing NPA not only impacts the financial
economy of developing countries like India .It position of banks but also the reputation and
has started affecting the roots of banking goodwill. The result of the study shows that
business especially for public sector banks. the NPA management of private sector bank
is much better than the public sector bank.
The study also reveals the positive
correlation of NPA and net profit of private
sector bank and negative correlation between
the public sector banks. Which show that the
NPA of private sector bank increase their
profit is also increase on the other side public
sector bank vice versa. Though completely
eradication of NPA in Banks is not possible
however it can be controlled by
implementation of stringent rules and
regulations by the government. The bank
should look for the authentic reasons behind
the debt borrow by the debtor. The banks
should have well structure pre and post
monitoring system and also can provide the
training awareness program regarding the
replacement and effective utilization of funds
to the borrower. Policy on willful defaulter
should be implemented against the defaulter
and a fast track tribunal will be very use full
to solve this current big banking issue of NPA.
The researcher can do study the impact of
NPA after merger of public Sector Banks
verses private sector.

ACKNOWLEDMENT

The author wish to convey our heartfelt

thanks to Prof. Lalit Kumar Awasthi, Director,
Dr B R Ambedkar National Institute of
Technology Jalandhar for their continued
support and guidance

Conflict of interest: There is no conflict

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How to cite this article: Misra, S.K. and Rana, R. (2019). Non-Performing Asset of Public and
Private Sector Banks
in India: A Descriptive Study. International Journal of Emerging Technologies, 10(2): 371–375.
Misra & Rana International Journal on Emerging Technologies
10(2): 371-375(2019) 375