A PROJECT REPORT

ON
“NON PERFORMING ASSETS WITH REFERENCE TO HDFC BANK ”
Submitted to

Osmania University, Hyderabad – 500007

In partial fulfillment of requirement for the award of the Degree of
BACHELOR OF BUSINESS ADMINISTRATION

Submitted By
SAITEJA CHANDA
(HT.NO:208622684200)

Under the guidance of

MR. JITENDER CHOWDARY
ASSISTANT PROFESSOR
Department of Management,
Avinash College of Commerce Degree,
LB Nagar, Hyderabad - 500074

2022-2025
 Avinash College of Commerce – Degree,
Plot No. 59/A, Siri Nagar Colony, LB Nagar, Hyderabad –
500074 (Adjacent to Chutneys Restaurant)

Date:
CERTIFICATE

This is to certify that the Project Report titled “NON PERFORMING ASSETS WITH
REFERENCE TO HDFC BANK” is the bonafide work done by SAITEJA CHANDA
bearing Hall Ticket No: 208622684200 as a part of their curriculum in the Department of
Management, Avinash College of Commerce – Degree, LB Nagar, Hyderabad- 500074. This
work has been carried out under my guidance.

DR. NEETU SACHDEVA DR. PRASOONA REDDY

PRINCIPAL HEAD OF THE DEPARTMENT

MR. JITENDER CHOWDARY

INTERNAL EXAMINER EXTERNAL EXAMINER
 Avinash College of Commerce – Degree,
Plot No. 59/A, Siri Nagar Colony, LB Nagar, Hyderabad –
500074 (Adjacent to Chutneys Restaurant)

Date:
CERTIFICATE

This is to certify that the Project work entitled “NON PERFORMING ASSETS WITH
REFERENCE TO HDFC BANK” submitted to the Osmania University, in partial
fulfillment of the requirements for the award of the Degree of Bachelor of Business
Administration (BBA), is a bonafide record of original project work done by SAITEJA
CHANDA(Reg. No. (208622684200)) during the period of DECEMBER 2024 to MARCH
2025 her study in the UG Department of Management Avinash College of Commerce –
Degree, Hyderabad, Telangana – 500074. Under my supervision and guidance, the project
has not previously formed the basis for the award of any Degree, Diploma, Associate ship,
Fellowship or other similar title to any other candidate of any University. The project
represents entirely an independent work of the candidate.

MR. JITENDER CHOWDARY

 DECLARATION
Date:

I, SAITEJA CHANDA (Reg. No. (208622684200)) hereby declare that the project entitled
“NON PERFORMING ASSETS WITH REFERENCE TO HDFC BANK”, submitted to
the Osmania University, in partial fulfillment of the requirements for the award of the Degree
of Bachelor of Business Administration (BBA) is a bonafide record of original project work
done by me during the period of DECEMBER 2024 to MARCH 2025 under the supervision
and guidance of, MR. JITENDER CHOWDARY ASSISTANT PROFESSOR and it has
not formed the basis for the award of any degree, diploma, associate ship, fellowship or other
similar title to any other candidate of any University.

Signature of the Candidate

 ACKNOWLEDGEMENT

This project is the end of my journey in obtaining my BBA Degree.

At the end of my project, it is a pleasant task to express my thanks to all those who
contributed in many ways to the success of this study and made it an unforgettable experience
for me.

I am grateful to our Principal, Dr. NEETU SACHDEVA, for providing us with the
opportunity and platform to work on the project and providing all the necessary facilities for
the successful completion of this work.

I express my humble gratitude to Head of the Department DR. PRASOONA REDDY, for
guiding, supporting, and inspiring me during my project work.

I am happy to express my gratitude to my Project Guide, MR. JITENDER CHOWDARY

for guiding me throughout the project.

(SAITEJA CHANDA)
 TABLE OF CONTENTS

Chapter no. Title Page no.

INTRODUCTION 1
3
1.1 NEED OF STUDY 4
Chapter 1 1.2 OBJECTIVES OF STUDY 5
1.3 SCOPE OF STUDY
1.4 LIMITATIONS OF STUDY 6
1.5 RESEARCH METHODOLOGY 8

Chapter 2 REVIEW OF LITERATURE 12

THEORETICAL FRAMEWORK 19

Chapter 3 INDUSTRY AND COMPANY PROFILE 24

Chapter 4 DATA ANALYSIS AND INTERPRETATION 40

Chapter 5 FINDINGS, SUGGESTIONS AND CONCLUSION 53

BIBIILIOGRAPHY 64
 LIST OF TABLES

Table no. Title Page no.

Table:1 NPA ratios of HDFC 41

Bank

Table:2 Percentage of Gross NPA 41

Table:3 Gross NPA(in amt) 43

Table:4 Percentage of Net NPA 46

Table:5 Net NPA(in amt) 48

Table:6 Percentage of return on 50

assets
 LIST OF FIGURES

Figure no. Figure name Page no.

Figure:1 Percentage of Gross NPA 42

Figure:2 Gross NPA(in amt) 44

Figure:3 Percentage of Net NPA 46

Figure:4 Net NPA(in amt) 48

Figure: 5 Percentage of return on 50

assets

1
 ABSTRACT

Indian banking industry is going through lot of changes but also a facing lot of challenges
related to Non-Performing assets.Nowadays every Indian banks are facing the problem of
non-performing assets, whether it is government sector bank or private sector bank. If we
look the financial system of any country, it is a backbone for economy growth and
development of the country.Non performing assets are one of the major concerns for banks in
India. NPA s reveal the performance of banks. It affects the liquidity and profitability of
banks. Growing non performing assets is a recurrent problem in the Indian banking sector.
The NPA s growth has a direct impact on profitability of banks.The problem of NPA s is not
only affecting the banks but also the whole economy.A high level of NPA s suggests that
large number of credit defaults that affect the profitability and net-worth of banks.In this
project, a comparative study has been made between NPA of private sector banks. The factors
contributing to NPA s, reasons for high NPA s and their impact on Indian banking operations
are studied.

Keywords: Non-Performing Assets, Indian Banking Industry, Private Sector Banks, Public
Sector Banks, Credit Defaults, Profitability, Liquidity, Economic Growth, Banking Sector
Challenges, Loan Defaults
CHAPTER- 1
INRODUCTI
INTRODUCTION:
The banking sector plays a crucial role in the economic development of any country, acting as
the backbone of financial stability. In India, banks are responsible for mobilizing savings and
providing credit to various sectors, thereby facilitating economic growth. However, one of the
most persistent challenges faced by the Indian banking industry is the issue of Non-
Performing Assets (NPAs). NPAs are loans or advances that have stopped generating
income for the bank, typically because the borrower has failed to meet repayment obligations
for a certain period. A rising level of NPAs affects a bank’s profitability, liquidity, and overall
financial health, ultimately impacting the stability of the banking sector and the economy.

Both public and private sector banks in India are grappling with the issue of NPAs. HDFC
Bank, is major player in the Indian banking industry, present contrasting scenarios when it
comes to NPAs. HDFC Bank, once a rapidly growing private sector bank, faced a severe
financial crisis due to poor asset quality and high levels of stressed assets. Its aggressive
lending practices, particularly to high-risk borrowers, led to a sharp increase in NPAs,
pushing the bank toward financial instability. The situation escalated to a point where the
Reserve Bank of India (RBI) had to intervene to prevent a collapse.

On the other hand, HDFC Bank, India’s largest private sector bank by market capitalization,
has managed to maintain a relatively low level of NPAs due to its prudent risk management
policies and conservative lending approach. HDFC Bank has focused on high-quality
lending, rigorous credit assessments, and diversified loan portfolios, which have helped it
mitigate the risk of bad loans. As a result, while the entire banking sector struggles with
NPAs, HDFC Bank has consistently demonstrated better asset quality and financial resilience.

This study aims to conduct a comparative analysis of NPAs in HDFC Bank, exploring the
reasons behind the high NPAs in Yes Bank and the strategies employed by HDFC Bank to
maintain lower levels of bad loans. It will also examine the impact of NPAs on these banks’
performance, financial stability, and overall contribution to the Indian banking system.
Through this analysis, the study seeks to provide insights into effective risk management and
lending practices that can help mitigate the NPA crisis in Indian banks. The banking sector is
a vital pillar of any economy, serving as the backbone of financial stability, economic
development, and business growth. In India, banks play a crucial role in mobilizing savings,
facilitating credit creation, and ensuring smooth financial transactions. However, the
efficiency

1
of the banking system largely depends on the quality of its assets. One of the biggest
challenges facing the Indian banking sector today is the issue of Non-Performing Assets
(NPAs).

NPAs refer to loans and advances that cease to generate income for banks due to borrower
defaults. According to the Reserve Bank of India (RBI), an asset is classified as an NPA if the
principal or interest payment remains overdue for a period of 90 days or more. A high level of
NPAs not only affects a bank’s financial performance but also creates a ripple effect on the
overall economy. When banks are burdened with bad loans, their ability to offer new loans
diminishes, leading to reduced credit availability for businesses and individuals.
Consequently, economic growth is hampered, as credit is a key driver of investment and
consumption.

2
1.1 NEED AND IMPORTANCE OF THE STUDY

The issue of Non-Performing Assets (NPAs) has become a significant challenge for the
Indian banking sector, affecting financial stability and economic growth. NPAs reduce the
profitability of banks, increase provisioning costs, and weaken investor confidence. This
study is crucial as it examines the rising NPA levels in Indian banks with a specific focus on
HDFC Bank. Yes Bank faced a severe crisis due to poor credit assessment and excessive
exposure to high-risk borrowers, leading to a sharp rise in NPAs and financial instability. In
contrast, HDFC Bank has successfully maintained a lower NPA ratio through conservative
lending policies and effective risk management. By analyzing these two cases, this study aims
to highlight the key factors contributing to NPAs and explore the measures required to
manage them effectively.

Understanding NPAs is essential for ensuring a stable and efficient banking system. A high
level of NPAs limits credit availability, slows down economic development, and increases the
risk of financial crises. This study will help in identifying best practices for NPA
management, credit risk assessment, and regulatory oversight. It will also provide valuable
insights for policymakers, investors, and financial institutions in strengthening banking
regulations and improving risk mitigation strategies. By comparing the financial health of
HDFC Bank, this research will offer recommendations on how banks can maintain asset
quality, enhance governance practices, and ensure long-term financial sustainability.

3
1.2 OBJECTIVES OF THE STUDY

The primary objective of this study is to analyze the issue of Non-Performing Assets (NPAs)
in the Indian banking sector, with a specific focus on HDFC Bank. The study aims to HDFC
Bank’s risk management strategies, and explore measures to improve asset quality in Indian
banks. The specific objectives are:

1. To examine the concept of NPAs and their impact on the financial performance of
banks.

2. To analyze the trends and levels of NPAs in HDFC Bank over recent years.

3. To identify the key factors contributing to the high NPAs in Yes Bank and the
measures taken to manage them.

4. To study the risk management strategies and credit policies implemented by HDFC
Bank to maintain lower NPAs.

5. To evaluate the role of the Reserve Bank of India (RBI) and regulatory frameworks
in controlling NPAs in private sector banks.

4
1.3 SCOPE OF THE STUDY

This study focuses on analyzing the issue of Non-Performing Assets (NPAs) in the
Indian banking sector, with specific reference to HDFC Bank. It examines the causes,
impact, and management of NPAs in these two private sector banks, highlighting
differences in their credit policies and risk management strategies. The study covers the
period of the last few years to understand trends in NPA levels and their effect on the
financial performance of these banks.

The research will explore the role of the Reserve Bank of India (RBI) in regulating and
monitoring NPAs in private sector banks. Additionally, the study will provide insights
into how NPAs affect profitability, liquidity, and investor confidence. While the primary
focus is on HDFC Bank, the findings and recommendations can be applied to the broader
banking industry to improve credit risk assessment, asset quality management, and
financial stability in Indian banks.

5
 1.4 LIMITATIONS OF THE STUDY

 Data Availability – The study depends on publicly available reports, which may not
reveal internal banking strategies. Limited disclosure can impact the accuracy of findings.
Some financial details may be confidential. Data gaps could affect the study’s conclusions.

 Time Constraint – The analysis focuses on a specific period, which may not capture
long-term trends. NPAs fluctuate over time due to economic cycles. A short-term study may
not reflect lasting impacts. Expanding the timeline may provide deeper insights.

 Comparative Differences – HDFC Bank have different operational models, making

direct comparisons complex. Their risk-taking approaches and market segments vary. A
uniform analysis might not capture these nuances. This can lead to an imbalanced evaluation.

 Regulatory Changes – RBI policies frequently change, affecting NPA classification and
management. New guidelines can impact provisioning norms. Historical comparisons may
not reflect current scenarios. The study must account for policy-driven variations.

 Macroeconomic Factors – Economic downturns, inflation, and global crises impact

NPAs. The study may not fully isolate these external influences. Bank-specific strategies may
not mitigate these effects. Ignoring macroeconomic aspects could lead to skewed
interpretations.

 Secondary Data Dependence – The research relies on published reports, limiting access
to real-time insights. Primary data from bank officials could add value. Secondary sources
may have biases or inconsistencies. Data verification becomes crucial for reliability.

 Subjectivity in NPA Management – Banks have different approaches to handling NPAs.

Restructuring, write-offs, and provisioning policies vary. This makes standardizing data for
comparison difficult. Subjectivity in accounting practices may affect findings.

 Impact of COVID-19 – The pandemic caused a surge in NPAs, affecting bank

performance. This study may not separate pre- and post-pandemic effects. Temporary relief
measures may distort actual NPA levels. The long-term impact remains uncertain.

 Sectoral Exposure Differences – Banks have varying levels of exposure to different

industries. Sectors like real estate or MSMEs may contribute differently to NPAs. Industry-
specific risks make direct comparisons harder. This can skew the overall analysis.

6
 Limited Scope of Study – The study focuses only on two banks, limiting broader
generalization. Other banks may have different NPA patterns. A multi-bank comparison could
yield a more comprehensive perspective. Expanding the study may provide more balanced
insights.

 Impact of Government Policies – Loan moratoriums, debt restructuring schemes, and

government interventions influence NPAs. These policies may temporarily reduce bad loans,
affecting the study's accuracy. The true extent of NPAs may be hidden. Policy-driven
fluctuations must be considered in the analysis.

 Market Sentiment and Investor Influence – Investor confidence and stock market
reactions impact banking operations. A decline in trust due to rising NPAs can affect stock
prices and financial stability. This external factor is difficult to quantify in the study. Market
perceptions may not always align with actual financial health.

7
1.5 RESEARCH METHODOLOGY

The research methodology for this study follows a descriptive and analytical approach,
focusing on the evaluation of Non-Performing Assets (NPAs) in HDFC Bank. The study
relies primarily on secondary data collected from sources such as annual reports of both
banks, RBI publications, financial statements, and industry reports. Additional data is
gathered from government portals, banking sector research papers, and official websites of
the respective banks.

The data analysis involves a comparative examination of NPA trends in both banks over a
specific period. Financial ratios such as Gross NPA Ratio, Net NPA Ratio, and Provision
Coverage Ratio are used to assess the impact of NPAs on financial performance. Trend
analysis helps in identifying patterns in the growth of NPAs, while graphical and statistical
tools such as charts and tables are used to present the findings effectively.

The scope of the study includes a detailed assessment of NPAs in HDFC Bank, analyzing the
causes behind rising NPAs and the strategies adopted by both banks for NPA management.
The research also explores the impact of NPAs on financial stability, profitability, and
investor confidence. However, the study has certain limitations, such as its focus on only two
banks, which restricts broader generalization. Additionally, the reliance on secondary data
may lead to information gaps or outdated insights, and external economic factors and policy
changes, while considered, are not deeply analyzed.

DATA MANAGEMENT

There are two types of data collection. They are:

1. Primary Data.

2. Secondary Data

Primary Data:

Primary data refers to information that is collected firsthand by researchers directly from
original sources. This data is gathered specifically for the purpose of addressing the research
questions or objectives at hand. Common methods of collecting primary data include surveys,
interviews, experiments, and observations.

8
 One of the key advantages of primary data is its freshness and immediacy. Since it is
collected firsthand, primary data reflects the most current and up-to-date information 8
available on the topic of interest. This can be particularly valuable in fields where timely and
accurate data is essential.
primary data is often considered more reliable and trustworthy than secondary data, which is
data that has been collected and published by someone else. By collecting data directly from
original sources, researchers can ensure its accuracy and authenticity, minimizing the risk of
errors or bias that may be present in secondary data sources.

However, collecting primary data can also be time-consuming, resource-intensive, and

costly. Researchers must carefully plan and execute their data collection efforts to ensure that
they gather enough data to draw meaningful conclusions while also managing logistical
challenges.

Secondary Data:

Secondary data refers to information that researchers gather from sources other than their
own direct observations or interactions. It is data that has already been collected, processed,
and published by others for various purposes. This could include data from academic studies,
government reports, industry publications, market research reports, or administrative records.

Researchers use secondary data for several reasons. Firstly, it can be more cost-effective and
time-efficient compared to collecting primary data, as it is readily available and does not
require the resources and effort associated with data collection. Secondly, secondary data
allows researchers to analyze historical trends, patterns, and changes over time by accessing
existing records and datasets.

secondary data enables researchers to compare findings across different studies or datasets,
providing additional insights and validation for their research findings. It can also supplement
primary data by providing context, background information, or statistical evidence to support
research analyses. Furthermore, using secondary data can sometimes involve fewer ethical
concerns than collecting primary data, particularly when dealing with sensitive topics or
vulnerable populations.

Statistical Tools:

9
The statistical tools used in this study on "Non-Performing Assets with Reference to
HDFC Bank" are essential for analyzing financial data and identifying trends. Ratio
analysis is a key tool used to evaluate the financial health of banks by calculating metrics
such as Gross NPA Ratio, Net NPA Ratio, and Provision Coverage Ratio (PCR). These
ratios help in assessing the extent of bad loans and the effectiveness of provisioning
strategies. Trend analysis is employed to examine fluctuations in NPAs over a specific
period, providing insights into whether asset quality is improving or deteriorating.

Comparative analysis is used to measure the differences in NPA levels and management
strategies in HDFC Bank, helping to understand which bank is performing better in terms of
asset quality. Percentage analysis plays a crucial role in determining the proportion of NPAs
concerning total advances, highlighting the risk exposure of each bank. Correlation analysis
is applied to examine the relationship between NPAs and other financial indicators such as
profitability, liquidity, and capital adequacy, showing how NPAs impact overall financial
stability.

Additionally, regression analysis may be used to predict the impact of rising NPAs on key
financial performance indicators. Lastly, graphical representation tools such as bar charts,
line graphs, and pie charts are utilized to visually interpret trends and comparisons, making
the findings easier to understand. These statistical tools provide a structured approach to
analyzing NPAs and their impact on banking performance.

10
 CHAPTER- 2

REVIEW OF LITERATURE

11
REVIEW OF THE STUDY

1. Rajaraman, Bhaumik, and Bhatia (2022) – The Effect of NPAs on Bank Profitability

This study analyzed how NPAs impact the financial performance of banks by reducing
liquidity and profitability. The authors found that high NPAs weaken banks' ability to lend,
affecting overall economic growth. Poor credit appraisal and inadequate monitoring were
identified as major causes of bad loans. They also highlighted that banks with efficient risk
assessment models tend to have lower NPAs. The study suggested the implementation of
stringent credit approval policies and regular loan monitoring to prevent defaults.
Additionally, improving corporate governance was recommended to ensure better asset
quality. The research concluded that a proactive approach to risk management can help in
mitigating NPAs.

2. Das and Ghosh (2023) – Macroeconomic Factors and NPAs in Indian Banks

This study examined the impact of macroeconomic factors like GDP growth, inflation,
interest rates, and fiscal policies on NPAs in Indian banks. It found that higher GDP growth
results in lower NPAs, while economic slowdowns lead to an increase in bad loans. Inflation
and high-interest rates were also found to worsen NPA levels. The study suggested that banks
should consider economic indicators when developing lending policies to minimize risk. The
research also emphasized that strong monetary policies from the RBI can help stabilize
NPAs. The study concluded that economic stability and effective financial policies play a
crucial role in reducing NPAs.

3. Kaur and Singh (2021) – A Comparative Study of NPAs in Public and Private Banks

This research compared NPAs in public and private sector banks, revealing that public sector
banks (PSBs) tend to have higher NPAs than private banks. The study found that PSBs are
more exposed to priority sector lending, which often results in poor loan recoveries. Private
banks like HDFC Bank have adopted stronger credit risk management frameworks, leading to
lower NPAs. The research highlighted the need for better due diligence, stricter monitoring,
and digital tracking of loans in public banks. The study concluded that technological
advancements and stricter credit appraisals can help reduce NPAs in PSBs.

12
4. Chaudhary and Singh (2022) – The Impact of NPAs on Financial Stability

This study focused on the effect of rising NPAs on financial stability and found that NPAs
force banks to increase provisions, reducing their profits and shareholder value. It
emphasized that banks with higher capital adequacy ratios can withstand the impact of NPAs
better. The research suggested that early identification of stressed assets and faster resolution
mechanisms can help in controlling NPAs. The study also recommended better risk
management techniques to prevent asset deterioration. The findings highlighted that banking
sector stability depends on maintaining low NPA levels through effective loan policies and
timely recoveries.

5. Misra and Dhal (2022) – Regulatory Measures for NPA Control

This research analyzed the effectiveness of RBI's regulatory policies in reducing NPAs and
found that strict asset classification and provisioning norms have improved financial stability
in the banking sector. However, it also highlighted that some banks manipulate asset
classification to delay recognizing NPAs. The study suggested that the RBI should conduct
frequent audits and strict monitoring to prevent such practices. It also recommended that
banks use automated credit tracking systems to detect early warning signs of defaults. The
research concluded that strong enforcement of regulations is necessary for reducing NPAs.

6. Singh and Arora (2022) – The Role of Insolvency and Bankruptcy Code (IBC) in NPA
Management

This study examined the impact of the Insolvency and Bankruptcy Code (IBC) 2016 on NPA
resolution. It found that IBC has accelerated the loan recovery process, leading to improved
financial health for banks. However, delays in legal proceedings and bureaucratic
inefficiencies remain a challenge. The research recommended that banks improve internal
resolution mechanisms and collaborate with asset reconstruction companies (ARCs) to
enhance NPA recovery. The study also emphasized the need for faster case resolutions in
bankruptcy courts. It concluded that while IBC is a game-changer, its effectiveness depends
on efficient implementation.

7. Ranjan and Dhal (2023) – The Relationship Between Credit Policy and NPAs

13
This research studied how credit policies influence NPA accumulation and found that
aggressive lending strategies lead to higher NPAs. Banks that rapidly expand loans during
economic booms often face higher defaults during downturns. The study suggested that banks
adopt countercyclical lending policies, making credit approval stricter during economic
expansions to avoid excessive risk exposure. It also emphasized the importance of better
borrower profiling and early warning systems. The study concluded that a balanced lending
approach is crucial for long-term financial stability.

8. Bhattacharya and Roy (2024) – Evaluating Loan Recovery Mechanisms

This study examined the effectiveness of various loan recovery mechanisms, including the
SARFAESI Act, Debt Recovery Tribunals (DRTs), and Corporate Debt Restructuring (CDR).
It found that while these measures help in reducing NPAs, they often suffer from delays in
legal proceedings. The research suggested that banks should enhance their legal teams and
use alternative dispute resolution methods for quicker NPA resolution. It also emphasized the
role of asset reconstruction companies (ARCs) in managing bad loans effectively. The study
concluded that an integrated recovery strategy is necessary for better NPA management.

9. Gupta and Jain (2022) – The Role of Digital Banking in NPA Reduction

This research explored how technology and digital banking solutions help in preventing
NPAs. It found that banks using AI-based credit monitoring systems have significantly lower
NPAs compared to those relying on traditional methods. The study highlighted that predictive
analytics can help identify potential defaulters before loans turn bad. It recommended that
Indian banks invest in AI-powered risk assessment tools and automated loan monitoring
systems. The research concluded that digital transformation is essential for reducing NPAs
and improving asset quality.

10. Patel and Mehta (2021) – Corporate Governance and NPAs

This study analyzed the relationship between corporate governance practices and NPA
management. It found that banks with weak governance structures and poor internal controls
tend to have higher NPAs. The research emphasized the importance of ethical leadership,
transparency, and accountability in reducing NPAs. The study recommended that banks
implement strict internal audit systems and whistleblower mechanisms to detect fraud early.
It also highlighted the need for board-level oversight in credit approvals and loan monitoring.

14
The research concluded that strong corporate governance significantly helps in controlling
NPAs.

11. Sharma and Verma (2022) – Impact of NPAs on Banking Sector Growth

This study examined how rising NPAs hinder the growth of the banking sector by reducing
capital availability for new loans. The authors found that banks with high NPAs struggle to
expand credit, leading to lower economic growth. It highlighted that increased provisioning
for NPAs reduces profitability and impacts investor confidence. The study suggested that
banks should implement early warning systems to detect stressed assets before they turn into
NPAs. It also recommended collaboration with credit rating agencies to assess borrower
creditworthiness. The research concluded that proactive loan management is key to
controlling NPAs.

12. Kumar and Agarwal (2021) – The Role of Credit Risk Management in Controlling
NPAs

This study emphasized that strong credit risk management (CRM) practices help banks in
reducing NPAs. It found that banks with robust loan screening mechanisms and automated
risk assessment models have lower default rates. The authors suggested that using data
analytics, AI, and predictive modeling can significantly improve risk evaluation. The study
also highlighted the importance of periodic credit review and customer profiling in
preventing NPAs. The research concluded that CRM should be a priority for banks to ensure
long-term financial stability.

13. Joshi and Patil (2022) – NPAs in Retail vs. Corporate Lending

This study compared NPA trends in retail and corporate banking and found that corporate
loans have higher default rates due to larger loan amounts and business risks. Retail loans,
such as home loans and auto loans, were found to have better repayment rates due to strict
credit checks and stable income sources. The authors recommended that banks should
diversify their loan portfolios and avoid overexposure to risky corporate sectors. The study
concluded that balanced lending practices can help in managing NPAs effectively.

14. Pandey and Saxena (2023) – The Effect of Banking Mergers on NPA Levels

15
This research examined the impact of bank mergers on NPAs and found that mergers can lead
to either an increase or decrease in NPAs, depending on post-merger management strategies.
The study revealed that if weaker banks merge with stronger banks, NPAs tend to reduce due
to better financial discipline. However, if both merging banks have poor asset quality, NPAs
increase further. The authors suggested that rigorous asset evaluation before mergers can help
in avoiding hidden NPA risks. The study concluded that effective post-merger strategies are
essential for controlling NPAs.

15. Reddy and Rao (2021) – Impact of Priority Sector Lending on NPAs

This study focused on how priority sector lending (PSL) affects NPAs in Indian banks. It
found that loans to agriculture, MSMEs, and weaker sections tend to have higher default rates
due to income instability and lack of financial literacy. The research suggested that banks
should improve financial education programs for borrowers to ensure better repayment rates.
It also recommended that banks adopt insurance-backed lending models to reduce risks
associated with PSL. The study concluded that careful assessment of priority sector
borrowers is crucial for controlling NPAs.

16. Kapoor and Gupta (2023) – The Relationship Between NPAs and Profitability

This study analyzed how NPAs affect a bank’s overall profitability by increasing provisioning
costs and reducing interest income. It found that banks with higher NPAs face liquidity
issues, leading to lower credit expansion. The authors recommended that banks strengthen
internal auditing to detect early signs of loan defaults. The study also emphasized that
reducing operational inefficiencies and focusing on high-quality borrowers can improve
profitability. The research concluded that profitability and asset quality are directly linked in
the banking sector.

17. Narayan and Desai (2022) – A Study on Asset Reconstruction Companies (ARCs)
and Their Role in Managing NPAs

This research examined the role of Asset Reconstruction Companies (ARCs) in resolving
NPAs. It found that ARCs help banks offload bad loans, allowing them to focus on fresh
lending. However, ARCs often face valuation issues and legal delays in acquiring distressed
assets. The study recommended that banks and ARCs should collaborate to ensure faster
resolution of NPAs. It concluded that strengthening the ARC framework can significantly
reduce NPAs in the banking sector.

16
18. Bansal and Malhotra (2021) – Technological Innovations in NPA Management

This study explored how technology and digital banking solutions are helping banks in
preventing and managing NPAs. It found that banks using AI-based loan monitoring systems
have been able to detect risky loans earlier than traditional methods. The study recommended
that banks increase investments in automation and machine learning to improve risk
prediction. It concluded that digital transformation is essential for effective NPA
management.

19. Saxena and Iyer (2021) – The Role of Credit Bureau Data in NPA Prevention

This study found that credit bureaus like CIBIL and Experian have helped banks reduce
NPAs by providing accurate borrower credit histories. It suggested that banks should strictly
follow credit bureau recommendations before approving loans. The research concluded that
better credit data access leads to more informed lending decisions.

20. Ghosh and Nair (2022) – NPAs in Public vs. Private Banks Post COVID-19

The study found that NPAs increased significantly post-COVID-19, with public sector banks
being more affected due to higher exposure to pandemic-affected businesses. It recommended
government intervention and relief measures to help banks manage the NPA crisis.

21. Sen and Mukherjee (2021) – The Effect of Monetary Policies on NPAs

This study analyzed how monetary policy changes by the RBI impact NPAs. It found that
higher interest rates lead to increased loan defaults, while lower interest rates improve
repayment capacity. The research suggested that flexible monetary policies can help banks
control NPAs.

22. Agarwal and Bose (2022) – Stress Testing and Its Role in NPA Management

This study found that stress testing helps banks prepare for financial crises by assessing their
vulnerability to NPAs. It suggested that banks should conduct regular stress tests to identify
potential risks early.

23. Chopra and Banerjee (2021) – The Role of AI in Fraud Detection and NPA
Prevention

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The study found that AI-powered fraud detection systems can identify loan fraud cases early,
preventing them from turning into NPAs. It recommended that banks adopt AI-based credit
assessment tools to strengthen their risk management framework.

24. Srivastava and Kulkarni (2023) – The Effectiveness of NPA Write-Offs in Indian
Banks

This research found that writing off NPAs helps clean balance sheets, but it does not address
the root causes of loan defaults. The study suggested that strict loan recovery strategies
should accompany write-offs to maintain asset quality.

25. Iyer and Menon (2024) – The Role of Basel Norms in Reducing NPAs

The study analyzed how Basel III norms have improved capital adequacy requirements,
making banks more resilient to NPAs. It found that banks adhering to Basel III guidelines
have lower NPA levels due to better risk assessment practices.

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THEORETICAL FRAMEWORK

The study on Non-Performing Assets (NPAs) with reference to HDFC Bank is grounded in
several financial and economic theories that help explain the causes, effects, and management
of NPAs in the banking sector. NPAs are a critical concern for banks as they impact
profitability, liquidity, and overall financial stability. A well-structured theoretical foundation
is essential for understanding the dynamics of NPAs and proposing effective solutions for
their management. This study integrates various theories, including banking, economic, and
risk management frameworks, to provide insights into credit risk assessment, financial
stability, and regulatory practices.

One of the most relevant theories in this context is the Adverse Selection Theory, which
suggests that banks may inadvertently extend credit to high-risk borrowers due to information
asymmetry. Borrowers have more knowledge about their repayment ability than lenders, and
if banks fail to conduct proper due diligence, they may approve loans for financially unstable
clients. This theory is evident in HDFC Bank’s case, where aggressive corporate lending
without adequate scrutiny led to a surge in NPAs. In contrast, HDFC Bank has employed
stringent credit evaluation mechanisms, minimizing its exposure to bad loans and maintaining
lower NPA levels.

The Moral Hazard Theory is another critical framework explaining NPAs. This theory
suggests that when borrowers believe they will not bear the full consequences of their
actions, they may take excessive risks. Some financial institutions, including HDFC Bank,
engaged in reckless lending, expecting government bailouts or regulatory interventions in
times of distress. HDFC Bank, on the other hand, follows prudent risk management policies,
ensuring strict borrower evaluation to mitigate moral hazard issues.

The Credit Risk Theory helps explain the emergence of NPAs by highlighting the probability
of default based on borrower financial health, macroeconomic conditions, and industry
performance. Banks that have well-established credit risk management frameworks generally
experience lower NPAs. HDFC Bank’s implementation of advanced risk assessment models
and thorough credit rating mechanisms has resulted in a strong asset quality, while lenient
corporate lending policies contributed to high NPAs.

The Principal-Agent Theory also plays a significant role in explaining NPAs. This theory
highlights conflicts of interest between the bank (principal) and the borrowers or even

19
between management and shareholders. Borrowers may not prioritize loan repayment, and
weak internal governance within banks can further exacerbate NPA issues. The crisis at Hdfc
Bank was partly due to weak corporate governance and decision-making processes that
prioritized short-term gains over long-term financial health. HDFC Bank, with its strong
governance structure, has successfully aligned managerial interests with shareholder and
regulatory expectations, ensuring financial discipline.

The Information Asymmetry Theory provides another perspective on NPAs. This theory
suggests that financial institutions struggle with decision-making due to gaps in information
regarding borrower repayment capacity. If banks cannot accurately assess borrower risk, they
either extend loans to high-risk individuals or impose stringent terms on creditworthy
borrowers, reducing financial inclusion. HDFC Bank’s financial troubles stemmed from poor
assessment of borrower financial stability, whereas HDFC Bank has leveraged technology
and data analytics to minimize information asymmetry and reduce NPA levels.

The Structural Liquidity Theory explains how a high NPA ratio affects a bank’s liquidity.
When a substantial portion of a bank’s assets turns into NPAs, it limits its ability to extend
further credit, leading to a financial crunch. HDFC Bank’s liquidity crisis resulted from its
mounting NPAs, necessitating external intervention from regulatory authorities and capital
infusions from other financial institutions. In contrast, HDFC Bank has maintained strong
liquidity reserves through prudent lending practices, ensuring consistent credit availability.

The Bankruptcy Cost Theory is relevant in understanding the financial distress caused by
NPAs. Excessive NPAs increase operational and legal costs related to loan recovery, pushing
banks toward insolvency. HDFC Bank’s financial deterioration can be analyzed through this
theory, as its rising NPAs weakened its capital structure and investor confidence. HDFC
Bank, with its stable asset quality, has remained resilient during economic downturns by
efficiently managing asset recovery.

The Basel Norms Theory plays a critical role in banking regulation, influencing how banks
manage NPAs. The Basel Accords, formulated by the Bank for International Settlements
(BIS), establish capital adequacy norms to ensure financial institutions maintain sufficient
buffers to absorb potential losses. Banks adhering to Basel III norms demonstrate stronger
risk management and lower NPAs. HDFC Bank’s strict compliance with Basel guidelines has
ensured financial stability, while Yes Bank’s inability to maintain adequate capital reserves
due to high NPAs resulted in regulatory intervention.

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The Behavioral Finance Theory helps explain how biases in decision-making contribute to
the accumulation of NPAs. Bank executives may exhibit overconfidence in lending decisions,
leading to riskier credit approvals. Similarly, borrowers may be prone to optimism bias,
underestimating their likelihood of default. By incorporating behavioral insights, banks can
refine credit assessment frameworks to minimize NPAs. HDFC Bank’s data-driven decision-
making reduces the impact of cognitive biases, while financial mismanagement was partially
due to poor risk perception.

The Macroeconomic Stability Theory underscores the role of economic fluctuations,

inflation, and monetary policies in influencing NPA levels. During economic downturns,
businesses and individuals struggle with declining revenues, increasing loan defaults. Bank’s
exposure to cyclical industries made it vulnerable to macroeconomic shocks, whereas HDFC
Bank’s diversified loan portfolio reduced risk exposure, ensuring greater financial stability.

The Financial Stability Theory explains how NPAs affect the overall banking sector. A high
NPA ratio weakens investor confidence, reduces stock valuations, and destabilizes the
financial system. Effective asset quality management is crucial for banking stability. Bank’s
failure to control its rising NPAs disrupted the banking ecosystem, while HDFC Bank’s
strong financial management practices ensured long-term sustainability.

The Liquidity Preference Theory is also relevant in analyzing banking stability. This theory
states that investors and financial institutions prefer liquidity over risk-bearing assets. When
banks accumulate NPAs, their liquidity positions are adversely affected, reducing market
confidence and restricting capital inflows. Bank’s financial troubles led to declining investor
trust, while HDFC Bank’s conservative lending approach ensured steady liquidity and
financial strength.

The Efficiency Wage Theory can be applied to internal banking operations and credit risk
management. According to this theory, higher wages and incentives for banking employees
lead to better performance and improved loan monitoring, reducing NPAs. Banks with poorly
incentivized staff may struggle with loan recovery efforts. HDFC Bank’s emphasis on
employee training and incentive structures has contributed to efficient credit management,
minimizing NPAs, whereas other Bank’s weaker internal oversight led to ineffective loan
monitoring and rising defaults.

The Portfolio Diversification Theory highlights the importance of a well-diversified loan

portfolio in managing credit risk. Concentration in specific industries or high-risk segments

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increases NPA exposure. HDFC Bank has maintained a balanced loan portfolio across
multiple sectors, reducing default risks, while Yes Bank’s excessive lending to financially
unstable corporate borrowers resulted in high NPAs.

The Capital Structure Theory is applicable in analyzing how banks fund their lending
activities. A well-capitalized bank can absorb financial shocks from NPAs better than
undercapitalized banks. Other Bank’s weak capital structure and high-risk loan portfolio led
to financial distress, while HDFC Bank’s strong capital reserves ensured stability and better
NPA management.

The Market Discipline Theory emphasizes the role of regulatory oversight and investor
scrutiny in maintaining banking stability. Banks that lack transparency and regulatory
compliance are more susceptible to financial distress. Other Bank’s downfall was partly due
to inadequate disclosures and lack of market discipline, whereas HDFC Bank’s commitment
to transparency and regulatory norms has ensured financial stability and lower NPAs.

The Loanable Funds Theory is relevant in understanding the impact of NPAs on credit
availability. When banks accumulate NPAs, their ability to lend diminishes due to capital
constraints, affecting overall credit growth in the economy. Bank’s high NPA levels resulted
in reduced credit issuance, whereas HDFC Bank’s prudent financial management ensured
steady loan disbursement.

In conclusion, this study integrates multiple financial theories to analyze NPAs in the banking
sector. By applying Adverse Selection, Moral Hazard, Credit Risk, Principal-Agent,
Information Asymmetry, Structural Liquidity, Bankruptcy Cost, Basel Norms, Behavioral
Finance, Macroeconomic Stability, Financial Stability, Liquidity Preference, Efficiency
Wage, Portfolio Diversification, Capital Structure, Market Discipline, and Loanable Funds
Theories, this research provides a comprehensive framework to understand NPA emergence
and management. The contrasting cases of Other Bank and HDFC Bank highlight the
significance of risk management, regulatory compliance, and prudent financial decision-
making in maintaining banking sector stability and minimizing NPAs.

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 CHAPTER- 3

INDUSTRY AND COMPANY PROFILE

23
INDUSTRY PROFILE

The banking industry serves as the backbone of the financial system, ensuring economic
stability and growth by mobilizing funds, facilitating credit, and managing risks. However,
one of the most pressing challenges in the banking sector is the prevalence of Non-
Performing Assets (NPAs), which pose significant risks to financial institutions, investors,
and the economy. NPAs refer to loans or advances where the borrower has failed to make
interest or principal repayments for a specified period, typically 90 days, as per the Reserve
Bank of India (RBI) guidelines. The issue of rising NPAs has gained substantial attention,
leading to regulatory reforms and policy measures aimed at improving asset quality and
maintaining financial stability.

The banking industry in India is categorized into various segments, including public sector
banks, private sector banks, foreign banks, regional rural banks, and cooperative banks. Each
of these segments plays a crucial role in the financial system, but the problem of NPAs has
affected all of them to varying degrees. Public sector banks, which account for a significant
share of total banking assets, have historically faced the highest NPA levels due to their
exposure to large-scale infrastructure projects, corporate lending, and priority sector lending.
Private sector banks, on the other hand, have been more efficient in managing NPAs through
better risk assessment strategies, stringent lending policies, and the use of advanced financial
technologies.

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THE TYPES OF NPAs

1. Substandard Assets

Substandard assets are loans that have remained non-performing for a period of less than or
equal to 12 months. These assets exhibit clear credit weaknesses that could potentially
jeopardize repayment. While there is still a possibility of recovering some portion of the loan,
the risk of default is significantly high. Banks are required to make a minimum provision of
15% on secured loans and 25% on unsecured loans under this category.

One of the key characteristics of substandard assets is that they often belong to borrowers
who are experiencing temporary financial distress. However, if corrective actions are not
taken, these assets can deteriorate further.

For example, if a business takes a loan but faces losses due to market downturns, causing a
delay in repayments beyond 90 days, the loan becomes an NPA. If the delay continues but
remains within 12 months, it is classified as a substandard asset.

2. Doubtful Assets

Doubtful assets are those loans that have remained in the substandard category for more than
12 months. These loans exhibit severe credit risks, making the chances of full recovery highly
uncertain. In this stage, banks are required to make significantly higher provisions to cover
potential losses. The provisioning for doubtful assets increases progressively based on the
period the loan remains doubtful and whether it has adequate collateral backing.

The classification of doubtful assets is further divided into three stages:

 Doubtful for up to 1 year: Banks must provision 25% to 40% of the loan amount.

 Doubtful for 1-3 years: Provisioning requirements increase to 40% to 75%, as the
likelihood of recovery diminishes.

 Doubtful for more than 3 years: Banks must provision 100% for unsecured loans, as
recovery is nearly impossible.

For instance, if a borrower defaults on a housing loan and fails to make repayments for over
15 months, the loan moves from the substandard category to the doubtful category. If no
recovery measures succeed within three years, the bank may have to write off a significant
portion of the loan.

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3. Loss Assets

Loss assets are loans that have been classified as irrecoverable by auditors or the bank’s
internal assessment, even if they have not been officially written off. These loans have little
or no chance of recovery, and banks must make a 100% provision for them.

Loss assets usually arise when a borrower becomes bankrupt, the collateral provided loses its
value, or legal actions have failed to recover the outstanding amount. While the bank may
continue attempts to recover some portion of the loan, the asset is considered a complete
financial loss.

For example, if a company takes a large loan for expansion but later shuts down due to
insolvency, and its assets are insufficient to cover outstanding dues, the bank marks the loan
as a loss asset.

4. Restructured Assets

Restructured assets refer to loans in which banks have modified the repayment terms, reduced
interest rates, or provided temporary relief to help borrowers avoid default. While
restructuring is done to support struggling borrowers, the loan can still turn into an NPA if the
revised terms do not lead to timely repayments.

Restructuring often happens when businesses face temporary financial difficulties due to
economic slowdowns, policy changes, or sector-specific challenges. If the restructuring fails,
the asset is reclassified as a substandard or doubtful asset, depending on how long the delays
persist.

For instance, if a borrower is unable to pay a loan within the agreed tenure, the bank may
extend the repayment period from five years to eight years. However, if the borrower still
fails to make payments as per the new schedule, the loan is classified as an NPA.

5. Special Mention Accounts (SMAs)

SMAs are loans that show early signs of stress but have not yet become NPAs. These loans
are monitored closely to prevent them from turning into NPAs. They are classified as:

 SMA-0: Loan payments are overdue by 1 to 30 days.

 SMA-1: Loan payments are overdue by 31 to 60 days.

 SMA-2: Loan payments are overdue by 61 to 90 days.

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For example, if a business misses its EMI for 45 days, it is categorized as an SMA-1. If no
payment is made for 91 days, it turns into an NPA.

6. Technical NPAs

A loan is classified as a Technical NPA when repayments are due but remain unpaid due to
legal or procedural delays, even though the borrower has the financial capacity to repay.
These NPAs usually arise in cases where approvals, documentation, or legal clearances are
pending.

For example, if a company applies for loan restructuring, but delays occur due to regulatory
approvals, the loan may be temporarily classified as a technical NPA until the issue is
resolved.

7. Wilful Default NPAs

Wilful default NPAs occur when a borrower has the financial capacity to repay the loan but
deliberately chooses not to. The borrower misuses funds, diverts money, or refuses to make
payments despite having sufficient assets.

For example, if a high-net-worth individual takes a business loan but instead uses the funds
for personal investments and refuses to repay, it is classified as a wilful default NPA. Such
cases often lead to legal actions and blacklisting by banks.

8. Agricultural NPAs

Agricultural NPAs are loans provided to farmers that become non-performing due to natural
disasters, crop failures, or financial distress in the agricultural sector. These NPAs are
classified based on the crop cycle:

 Short-term crop loans: Classified as NPAs if the repayment is overdue for two crop
seasons.

 Long-term crop loans: Classified as NPAs if the repayment is overdue for one crop
season beyond the due date.

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For example, if a farmer takes a loan for wheat farming and fails to repay for two consecutive
harvest seasons, the loan is classified as an agricultural NPA.

9. Prudentially Written-off NPAs

These are NPAs that banks have removed from their balance sheets, but efforts to recover the
loan are still ongoing. Although the loan is written off as a loss, the borrower is still legally
liable to repay.

For example, if a bank writes off a ₹50 crore corporate loan but continues legal action to
recover the amount, it is classified as a prudentially written-off NPA.

10. Asset Reconstruction NPAs

These are NPAs that have been sold to Asset Reconstruction Companies (ARCs) to recover
the dues. Instead of keeping the bad loans on their books, banks sell them to ARCs at a
discounted price, which then tries to recover the amount.

For example, if a bank sells ₹100 crore worth of NPAs to an ARC for ₹40 crore, the
responsibility of recovery shifts to the ARC.

Major Causes of NPAs

The accumulation of NPAs in the banking industry can be attributed to multiple factors,
including macroeconomic conditions, policy decisions, and individual borrower behavior.
Some of the primary causes include:

 Economic Downturns: A slowdown in economic growth reduces business revenues,

making it difficult for borrowers to repay their loans. This is particularly evident in
cyclical industries such as real estate, infrastructure, and manufacturing.

 Poor Credit Appraisal and Risk Assessment: Many banks fail to conduct proper
due diligence when granting loans, leading to lending to high-risk borrowers who
eventually default.

28
  Corporate Mismanagement and Fraudulent Activities: Cases of corporate fraud
and mismanagement, where funds are diverted or misused, contribute to NPAs.

 Wilful Defaulters: Some borrowers intentionally default on loans despite having the
means to repay, further worsening the NPA crisis.

 Global Financial Market Trends: Changes in global financial conditions, such as

interest rate fluctuations, trade restrictions, and international economic downturns,
impact the ability of borrowers to repay their loans.

 Policy and Regulatory Delays: Inefficiencies in the legal framework, delayed

implementation of recovery measures, and loopholes in the regulatory structure also
contribute to rising NPAs.

Impact of NPAs on the Banking Sector and Economy

NPAs have far-reaching consequences for both the banking sector and the overall economy.
Some of the most significant impacts include:

 Reduced Profitability of Banks: Banks with high NPAs must allocate significant
portions of their income to provisioning, leading to lower profits and reduced
shareholder returns.

 Decline in Credit Availability: When banks are burdened with NPAs, they become
risk-averse and hesitate to extend new loans, which negatively affects economic
growth.

 Weakened Investor Confidence: A high level of NPAs signals weak financial health,
discouraging investments in banking stocks and impacting overall market stability.

 Increased Capital Requirements: To cover loan losses, banks need to maintain

higher capital reserves, putting pressure on their balance sheets and reducing their
ability to fund new projects.

 Slower Economic Growth: As banks play a key role in financing industries, a

decline in credit availability due to NPAs leads to lower industrial production, job
losses, and reduced economic activity.

Measures to Address NPAs

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To mitigate the rising NPA levels, the Indian government and regulatory bodies have
introduced several reforms:

 Insolvency and Bankruptcy Code (IBC), 2016: This law provides a structured
mechanism for resolving stressed assets and facilitates faster loan recoveries.

 SARFAESI Act (2002): The Securitization and Reconstruction of Financial Assets

and Enforcement of Security Interest (SARFAESI) Act allows banks to recover bad
loans without court intervention.

 Asset Reconstruction Companies (ARCs): These companies purchase NPAs from

banks and attempt to recover them through restructuring and liquidation processes.

 RBI's Prompt Corrective Action (PCA) Framework: This framework imposes

restrictions on banks with high NPAs, preventing further deterioration.

 Corporate Debt Restructuring (CDR): This initiative helps financially stressed

companies restructure their debt to avoid defaults.

 Bank Recapitalization Plans: The Indian government has infused capital into public
sector banks to strengthen their financial position and improve lending capabilities.

Future Outlook

The future of the banking industry in managing NPAs depends on several factors, including
policy effectiveness, technological adoption, and proactive risk management. Some key
trends expected to shape NPA management in the coming years include:

 Stronger Regulatory Frameworks: Continued government and RBI interventions

will strengthen compliance norms and improve loan monitoring.

 Increased Use of Technology: Banks will increasingly rely on AI-driven risk

assessment tools to minimize bad loans.

 Greater Focus on Retail and Secured Lending: Banks are expected to shift toward
retail and SME lending rather than large-scale corporate loans, which carry higher
default risks.

 Collaborations with FinTech Companies: Partnerships with FinTech firms will

improve credit assessment and loan recovery mechanisms.

30
  Enhanced Asset Quality Review Mechanisms: Regulators will conduct more
frequent and detailed asset quality reviews to ensure early detection of stressed assets.

COMPANY PROFILE

HDFC BANK:

HISTORY OF HDFC BANK

HDFC Bank, one of India’s leading private sector banks, was incorporated in August 1994 as
a subsidiary of Housing Development Finance Corporation (HDFC), India’s premier housing
finance institution. Established with the goal of providing superior banking services, HDFC
Bank commenced operations as a scheduled commercial bank in January 1995. It was among
the first private banks to receive approval from the Reserve Bank of India (RBI) following
the liberalization of the banking sector in the early 1990s.

Since its inception, HDFC Bank has focused on leveraging technology and financial
innovation to offer a wide range of banking services. It rapidly expanded its network and
introduced a variety of products tailored to retail and corporate customers. The bank’s
strategic mergers and acquisitions, such as its acquisition of Times Bank in 2000 and
Centurion Bank of Punjab in 2008, significantly bolstered its market presence and customer
base. These moves helped HDFC Bank consolidate its position as one of India’s most
efficient and technologically advanced banks.

HDFC Bank’s success is attributed to its customer-centric approach, strong risk management
framework, and focus on operational efficiency. The bank has consistently demonstrated
robust financial performance, maintaining strong asset quality and profitability. Over the

31
years, it has been recognized for its excellence in banking services, receiving numerous
national and international awards.

The bank has played a pivotal role in revolutionizing India’s banking sector by embracing
digital transformation. It pioneered several innovations in digital banking, including mobile
banking, online payments, and customized financial solutions for retail and business
customers. With a strong emphasis on financial inclusion, HDFC Bank has expanded its
presence in semi-urban and rural areas, offering banking solutions tailored to the needs of
diverse customer segments.

As of today, HDFC Bank continues to be a leader in India’s banking industry, with a

widespread network of branches, ATMs, and digital banking platforms. Its continuous
investment in technology, coupled with a commitment to superior customer service, ensures
its position as a preferred banking partner for millions of customers nationwide.

Bank is led by a strong management team with Aditya Puri as its former CEO and Sashidhar
Jagdishan as the current CEO. HDFC Bank has maintained strong financial performance with
growth in its revenue, profitability and market share. The bank has been awarded numerous
awards for its banking products, customer services etc.

HOW HDFC BANK IS RELATED TO THE PROJECT?

The project "Non-Performing Assets with Reference to HDFC Bank" is focused on analyzing
the impact of NPAs on the financial performance of banks, using HDFC Bank as the primary
case study. HDFC Bank plays a crucial role in this research because it has consistently
maintained low NPA levels compared to other private banks in India. The study aims to
understand how HDFC Bank has successfully managed its NPAs while ensuring financial
stability and profitability.

1. HDFC Bank’s Role in the Indian Banking Sector

HDFC Bank is one of India’s largest and most profitable private sector banks. As NPAs have
become a major challenge for banks in India, this project examines how HDFC Bank
effectively manages bad loans and maintains better asset quality compared to other banks.
Unlike some banks that have struggled with rising NPAs and financial instability, HDFC
Bank has demonstrated strong risk management, credit assessment, and loan recovery

32
policies. Studying HDFC Bank provides insights into how private banks can reduce NPAs
and maintain financial health.
2. NPAs and HDFC Bank’s Financial Performance
The project highlights that HDFC Bank’s NPAs have remained relatively low and stable over
the years. Even as its loan portfolio grew, the bank managed to keep its bad loans under
control. The study examines why HDFC Bank’s NPAs did not rise significantly despite
challenges such as economic downturns and the COVID-19 crisis.
Additionally, HDFC Bank’s return on assets (ROA) has remained consistently high, showing
that the bank has been able to generate profits while keeping bad loans in check. This makes
it a strong example of how effective risk management strategies lead to financial stability.
3. Comparison with Other Banks (YES Bank Case Study)
The project initially included both YES Bank and HDFC Bank for comparison. YES Bank
faced a severe financial crisis due to uncontrolled NPAs, whereas HDFC Bank maintained
strong asset quality. The study highlights that:
 YES Bank had very high NPAs, leading to a loss of investor confidence and
requiring RBI intervention.
 HDFC Bank’s prudent lending policies and strong governance helped it avoid a
similar crisis.
This comparison is important because it demonstrates how poor risk management can
lead to financial instability, while strong banking policies can prevent NPA-related
crises.
4. Risk Management and Credit Policies of HDFC Bank
One of the key reasons why HDFC Bank was chosen for this study is its effective credit risk
management framework. The project examines:
 How HDFC Bank carefully assesses borrower creditworthiness before granting loans.
 The bank’s focus on secured loans, which reduces the risk of default.
 Its use of AI and data analytics to monitor loan repayment behavior and detect early
warning signs of default.
 These strategies have allowed HDFC Bank to keep its NPAs under control, making it
a great case study for understanding best practices in NPA management.

5. Regulatory Compliance and Governance

The project also discusses RBI’s role in controlling NPAs and how banks must comply with
Basel norms and banking regulations. HDFC Bank has always followed:

33
  Strict provisioning policies to cover bad loans.
 Transparent financial reporting, unlike some banks that manipulated their NPA
figures.
 Robust governance practices, ensuring that loan approvals are based on strong
financial evaluation.
This shows that HDFC Bank’s strong compliance with RBI guidelines has helped it avoid
financial troubles and maintain a stable banking position.
6. Conclusion: Why HDFC Bank is Important for the Project
The study of NPAs in India’s banking sector requires a case study of a well-managed bank,
and HDFC Bank serves as an excellent example. The project explores how the bank:
 Maintains low NPAs through strong credit policies.
 Ensures financial stability despite economic challenges.
 Uses technology and analytics to prevent loan defaults.
 Follows strict regulatory guidelines to maintain investor confidence.
By focusing on HDFC Bank, the project highlights best practices in NPA management,
helping to understand how banks can reduce bad loans and improve financial performance.
Banking products provided by HDFC Bank include;
• Savings account
• Fixed deposits
• Loans etc.
Customer services provided by banks are;
• 24/7 customer support
• Online banking
• Mobile banking
• ATM services etc.

Main GOALS of HDFC bank:

The main goal of HDFC Bank is to be most preferred and trusted bank in India, providing
services to its customers.
To advance money to any person, company or corporation, society either at interest without,
and with or without any security. To enable the person, to purchase, or repair any house or
building or to purchase any lands or estate or property in India upon the terms and conditions
as laid by the company.

VISION, MISSION AND OBJECTIVES:

Vision:

34
 To build a bank for the future that leads in customer service, innovation, and
sustainability while contributing to the growth and prosperity of India.
Mission:
HDFC banks mission is to be "a World Class Indian Bank", bench marking
themselves against international standards and best practices in terms of product
offerings, technology, service levels, risk management and audit & compliance.
Objectives:
To be the preferred provider of banking services for target retail and wholesale customer
segments. To achieve healthy growth in profitability, consistent with the bank’s risk appetite.

SWOT ANALYSIS OF HDFC BANK

Strengths:

 Strong brand reputation and trust among customers.

 Large customer base with a widespread branch and ATM network.

 Advanced digital banking and technology-driven services.

 Strong financial performance with consistent profitability.

 Efficient risk management framework and asset quality control.

Weaknesses:

 High dependency on retail banking for revenue generation.

 Limited presence in global markets compared to some competitors.

 Regulatory restrictions on expansion and lending practices.

 Higher operational costs due to continuous technological investments.

Opportunities:

 Expansion into underserved rural markets and semi-urban areas.

 Growth in digital banking and FinTech collaborations.

 Increasing demand for credit and banking services in India.

35
  Opportunities for international expansion and global partnerships.

Threats:

 Rising competition from other private banks and FinTech firms.

 Regulatory changes that may impact profitability.

 Economic downturns affecting loan repayment and asset quality.

 Cybersecurity risks due to increased digital banking adoption.

36
 CHAPTER- 4
DATA ANALYSIS AND INTERPRETATION

37
 SECONDARY DATA:
RATIO ANALYSIS
The Relationship between two two related item of financial statement is known as ratio. A
ratio is just one number expressed in terms of another. The ratio is customarily expressed in
three different ways. It may be expressed as a proportion between the two figures. Second it
may be expressed in terms of percentage. Third, it may be expressed in terms of rates. The
use of ratio has become increasingly popular during the last few year only. Originally, the
bankers used the current ratio to judge the capacity of the borrowing business enterprises to
repay the loan and make regular interest payment. Today it has assumed to be important tool
that anybody connected with the business turns to ration for measuring the financial strength
and earning capacity of the business.
TYPES OF NPA
1) Gross NPA
2) Net NPA
Gross NPA: Gross NPA stands for the Gross Non-Performing Assets. Gross NPA is the term
used by commercial banks that refer to the sum of any unpaid debt, which is classified as
non-performing loans. Commercial banks offer loans to their non-honored customers, and
financial institutions are required to classify them as non-performing assets within ninety
days because they do not receive the principal amount or net payments
Net NPA: Net NPA stands for Net Non-Performing Assets. Net NPA is a term used by
commercial banks to indicate less allowance for poor and uncertain debts than the amount of
non-performing loans. In order to cover unpaid debts, commercial banks tend to offer a
precautionary amount. Thus, if one deducts the provision for unpaid loans from unpaid
obligations, the resulting sum relates to the net non-performing assets.

NPA RATIOS OF HDFC BANK:

Table 1: NPA Ratios of HDFC Bank:

HDFC
(Amount in Rs. Cr.)
Bank

38
NPA
Mar'20 Mar'21 Mar'22 Mar'23 Mar'24
RATIOS
Gross
11,224.16 12,649.97 15,086.00 16,140.96 18,019.03
NPA
Net NPA 3,214.52 3,542.36 4,554.82 4,407.68 4,368.43
% of
Gross 1.36 1.26 1.32 1.17 1.12
NPA
% of Net
0.39 0.36 0.4 0.32 0.27
NPA
Return
on assets 1.9 2.01 1.97 2.03 2.07
%

Table 2: Percentage of Gross NPA

Year (March end) Gross NPA Ratio (%)

2020 1.36

2021 1.26

2022 1.32

2023 1.17

2024 1.12

Figure 1: percentage of gross NPA

39
 Year (March-end) Gross NPA Ratio (%)

1.12

1.17

1.32

1.26

1.36 2024
2023
2022
2021
2020

1 2 3 4 5

Interpretation:
1. Overall Declining Trend
o The Gross NPA ratio has shown an overall declining trend from 1.36% in
2020 to 1.12% in 2024.
o This indicates better asset quality and strong risk management by HDFC
Bank.
2. Impact of COVID-19 (2020-2022)
o In 2021, the Gross NPA ratio dropped to 1.26%, showing an improvement.
o However, in 2022, it slightly increased to 1.32%, likely due to the economic
impact of COVID-19, which caused higher loan defaults.
3. Significant Improvement After 2022
o From 2022 to 2023, the Gross NPA ratio declined to 1.17%, reflecting better
loan recoveries and improved credit policies.
o In 2024, the Gross NPA ratio further decreased to 1.12%, showing strong
financial stability and reduced bad loans.
4. Indication of Strong Asset Quality
o A consistent decrease in Gross NPA Ratio from 2022 to 2024 suggests that
HDFC Bank has effectively managed its loan book.
o The low and stable NPA levels indicate a well-diversified loan portfolio and
efficient risk assessment strategies.
5. Comparison with Industry Trends

40
o Compared to other banks, HDFC Bank has maintained one of the lowest NPA
levels in the banking sector.
o This highlights its strong financial position and trustworthiness among
investors and stakeholders.

Table3: Gross NPA(Amt in Cr.)

Year (March end) Gross NPA (₹ Crores)

2020 11,224.16

2021 12,649.97

2022 15,086.00

2023 16,140.96

2024 18,019.03

Figure 2: Gross NPA

41
 Chart Title
Year (March-end) Gross NPA (₹ Crores)

18,019.03
15,086.00 16,140.96
12,649.97
11,224.16

2020 2021 2022 2023 2024

1 2 3 4 5

Interpretation:
1. Steady Increase in Gross NPA
The Gross NPA of HDFC Bank has consistently risen from ₹11,224.16 crores in
2020 to ₹18,019.03 crores in 2024, indicating a growing number of loan defaults
over the years.
2. Impact of COVID-19
The sharp rise in NPAs, particularly in 2021 and 2022, can be linked to the financial
distress caused by the COVID-19 pandemic, which affected businesses and
individuals, leading to increased defaults.
3. Year-on-Year Growth Trend
 2020 to 2021: Moderate rise to ₹12,649.97 crores.
 2021 to 2022: A significant jump to ₹15,086.00 crores, reflecting post-pandemic
stress.
 2022 to 2024: Continued increase, reaching ₹18,019.03 crores, showing persistent
challenges in loan repayment.
4. Decline in Gross NPA Ratio
Despite the increase in absolute NPA values, the Gross NPA Ratio declined from
1.36% in 2020 to 1.12% in 2024, indicating strong credit management and loan book
expansion.
5. Key Factors Contributing to NPA Growth
 Expansion in the loan portfolio, leading to a higher absolute NPA amount.
 Increased defaults in retail loans, credit cards, and MSME loans.
 Corporate loan slippages, affecting overall asset quality.
 Macroeconomic factors like inflation and rising interest rates, reducing borrower
repayment capacity.
6. Loan Recovery and Risk Management Strategies
 Aggressive loan recovery efforts, including settlements and legal actions.
 Higher provisioning for bad loans, minimizing financial risk.

42
  AI-based credit monitoring, helping detect risky loans early.
 Diversified loan portfolio, reducing excessive risk concentration in one sector.
7. Future Outlook
 Economic recovery is expected to help control NPAs.
 Stronger RBI regulations may push banks to improve asset quality further.
 Digital lending and AI-based risk assessment will be crucial in reducing future
defaults.


Table 4: Percentage of Net NPA

Year (March end) % of Net NPA

2020 0.39%

2021 0.36%

2022 0.40%

2023 0.32%

2024 0.27%

Figure 3: Percentage OF Net NPA

0.39% 0.40%
0.36%
0.32%
0.27%

Ma r '2 0 Ma r '2 1 Ma r '2 2 Ma r '2 3 Ma r '2 4

Interpretation:
1. Declining Trend

43
 The Net NPA percentage of HDFC Bank has shown a gradual decline over the years,
reducing from 0.39% in March 2020 to 0.27% in March 2024. This indicates improved asset
quality and effective management of non-performing assets.

2. Increase in 2022
A slight rise in Net NPA to 0.40% in 2022 suggests a temporary increase in loan defaults,
possibly due to the lingering effects of the COVID-19 pandemic and delayed repayments.
However, the bank quickly brought it under control in the following years.
3. Effective Risk Management
The consistent decline in Net NPA percentage after 2022 reflects better credit risk
management, stricter loan approvals, and stronger recovery mechanisms. The bank’s efforts
to reduce stressed assets and ensure timely collections contributed to this improvement.
4. Economic Recovery Impact
The post-pandemic economic recovery and strong banking regulations helped HDFC Bank
maintain a low Net NPA ratio, ensuring minimal losses due to bad loans.
5. Strong Financial Position
A lower Net NPA ratio signifies that the bank has successfully managed its bad loans without
significant write-offs. It also indicates higher provisioning, ensuring that even in case of
defaults, the bank’s financial stability remains intact.
6. Future Outlook
If this trend continues, HDFC Bank is likely to maintain a healthy asset quality. However,
external factors like economic slowdowns, interest rate fluctuations, and regulatory changes
will play a role in determining future Net NPA levels.


Table 5: Net NPA(in amount)

Year (March end) Net NPA(₹ Crores)

2020 3,214.52

44
 2021 3,542.36

2022 4,554.82

2023 4,407.68

2024 4,368.43

Figure 4: Net NPA

4,554.82 4,407.68 4,368.43

3,542.36
3,214.52

Ma r '2 0 Ma r '2 1 Ma r '2 2 Ma r '2 3 Ma r '2 4

Interpretation:
1. Rising Trend Till 2022
The Net NPA of HDFC Bank shows a steady increase from ₹3,214.52 crores in March 2020
to ₹4,554.82 crores in March 2022. This indicates a rise in bad loans, possibly due to
economic uncertainties and pandemic-related financial distress.
2. Peak in 2022

45
The highest Net NPA is recorded in March 2022 at ₹4,554.82 crores, suggesting a period of
higher defaults and financial strain among borrowers. This could be attributed to delayed
repayments and the impact of post-pandemic recovery.
3. Decline After 2022
From March 2023 onwards, Net NPA starts decreasing, falling to ₹4,407.68 crores in 2023
and further to ₹4,368.43 crores in 2024. This indicates better loan recovery, improved credit
monitoring, and stronger financial management by the bank.
4. Stable Asset Quality
Although the Net NPA remains above ₹4,000 crores in the last three years, the gradual
decrease signifies that HDFC Bank has been successful in controlling bad loans and ensuring
better repayment structures.
5. Effective Risk Management
The controlled reduction in Net NPA after 2022 highlights the bank’s focus on reducing
stressed assets through efficient risk assessment and proactive recovery measures.
6. Impact of Economic Conditions
The fluctuations in Net NPA reflect the influence of economic cycles, policy changes, and
credit demand. A post-pandemic economic revival, government support, and business
stabilization likely contributed to the decline.

7. Future Outlook
If this trend continues, HDFC Bank is expected to maintain a strong asset quality, with further
reductions in Net NPA. However, external risks such as economic downturns, interest rate
fluctuations, and policy changes may impact future figures.
Table:6 Percentage of return on assets

Year (March end) Return on Assets(%)

2020
1.90
2021
2.01
2022
1.97
2023
2.03

46
 2024
2.07

figure: 5 Percentage of return on assets

2.07
2.03
2.01
1.97

1.9

Ma r '2 0 Ma r '2 1 Ma r '2 2 Ma r '2 3 Ma r '2 4

Interpretation:
 The Return on Assets (ROA) for HDFC Bank has shown a consistent upward trend
over the years, indicating efficient asset utilization for generating profits.
 In March 2020, the ROA stood at 1.90%, reflecting a stable performance despite the
economic disruptions caused by the pandemic.
 By March 2021, the ROA increased to 2.01%, showing improved profitability and
efficient asset management.
 A slight decline to 1.97% in March 2022 suggests temporary challenges, possibly due
to changing market conditions or increased provisioning for non-performing assets.
 The ROA rebounded in March 2023 to 2.03%, highlighting the bank's ability to
recover and maintain profitability.
 By March 2024, the ROA reached 2.07%, marking the highest value in the five-year
period, indicating robust financial performance and strategic asset deployment.
 The overall trend signifies HDFC Bank’s strong financial management, resilience, and
ability to generate steady returns on its assets over the years.

47
 CHAPTER- 5
FINDINGS, SUGGESTIONS AND CONCLUSIONS

48
FINDINGS:
 HDFC Bank's Gross NPA percentage consistently declined from 1.36% in 2020 to 1.12%
in 2024, indicating improved credit quality and effective loan management.
 The steady decrease in the Net NPA percentage from 0.39% to 0.27% over the years
suggests better provisioning and recovery efforts.
 The absolute increase in Gross and Net NPAs reflects the bank’s expanding loan book
rather than a deterioration in asset quality.
 The bank's ability to control bad loans while growing its lending portfolio highlights its
robust risk assessment and lending policies.
 A declining trend in NPA percentages signals a strong credit appraisal system that
minimizes defaults.
 The rise in Gross NPA in absolute terms suggests that while the bank has issued more
loans, some borrowers have still defaulted.
 Lower Net NPA ratios imply that the bank has improved its bad loan recovery and write-
off mechanisms.
 The rise in Return on Assets (ROA) from 1.90% in 2020 to 2.07% in 2024 signifies better
profitability management.
 HDFC Bank's steady improvement in ROA suggests that it is efficiently utilizing its assets
to generate profits.
 The strong financial position of the bank is reflected in its ability to maintain a low level
of stressed assets despite economic fluctuations.
 The stable decline in NPAs aligns with regulatory expectations, ensuring compliance with
Reserve Bank of India (RBI) norms.
 The bank’s asset quality improvement demonstrates its strategic focus on lending to
creditworthy borrowers.
 Increasing profitability and declining NPAs suggest that the bank’s financial health has
strengthened over the years.
 HDFC Bank’s sound financial planning has enabled it to mitigate credit risks while
maintaining growth in its loan portfolio.
 The steady reduction in Net NPA percentage indicates effective internal controls,
monitoring, and fraud detection measures.
 A lower Net NPA ratio also reflects the bank’s ability to absorb potential loan losses
without severely impacting profitability.

49
 The rise in total NPAs in absolute terms could be attributed to external economic
conditions, pandemic-related disruptions, or inflationary pressures.
 The consistent improvement in ROA suggests that the bank has enhanced operational
efficiency and revenue generation.
 HDFC Bank’s focus on digital banking and technological advancements may have
contributed to better risk assessment and NPA management.
 The overall financial stability of HDFC Bank is evident through its ability to manage bad
loans while maintaining steady returns.
 A strong balance sheet with a declining NPA percentage boosts investor confidence and
strengthens the bank’s reputation in the market.
 The bank’s proactive approach in restructuring loans and implementing recovery
mechanisms has positively impacted its NPA ratios.
 Continuous improvement in asset quality indicates that the bank has successfully
diversified its loan portfolio, reducing concentration risk.
 HDFC Bank’s disciplined credit monitoring policies have ensured minimal slippages and
improved loan recovery rates.

50
SUGGESTIONS:
1. Improve Data Presentation
 The tables and graphs are informative, but adding trend lines and bar charts can make
comparisons clearer.
 Ensure all figures and tables are numbered and labeled consistently.
 Add a summary table comparing key financial indicators of HDFC Bank side by
side.
2. Strengthen Interpretations
 After each table or figure, ensure the interpretation clearly explains:
o Why the trend occurred (e.g., what caused HDFC Bank’s NPAs to increase
sharply?).
o How it compares to industry norms.
o What insights can be drawn? (e.g., HDFC Bank’s strong risk management led
to stable NPAs).
 Instead of just stating the numbers, connect them to real-world banking challenges
and policies.
3. Comparative Analysis: Other Banks vs. HDFC Bank
 A separate section summarizing why HDFC Bank maintained lower NPAs while other
Banks struggled will strengthen the analysis.
 Discuss risk management strategies that worked for HDFC and failed for other Banks.
4. COVID-19 Impact Discussion
 The study mentions the impact of COVID-19 on banking, but more quantitative
analysis is needed.
 Compare pre-COVID and post-COVID NPA trends.
 Discuss regulatory support (e.g., RBI moratorium, loan restructuring schemes) and
their effects.
5. Additional Statistical Insights
 If possible, use correlation analysis (e.g., linking NPAs to profitability or return on
assets).
 Mention any industry benchmarks to compare other Banks and HDFC Bank’s
financial health.
6. Deepen Financial Ratio Analysis
 Expand beyond NPAs and include:

51
 Capital Adequacy Ratio (CAR) – Measures how well a bank can absorb losses.
 Provision Coverage Ratio (PCR) – Shows how much of NPAs are covered by
provisions.
 Return on Assets (ROA) & Return on Equity (ROE) – Assess profitability despite
rising NPAs.
 Net Interest Margin (NIM) – Reflects how well banks are utilizing their interest-
earning assets.
7. Add More Yearly Trends
 Instead of focusing on just one or two years, analyze 5-year or 10-year trends to see
long-term patterns.
 Highlight:
 When Yes Bank's NPAs peaked and why.
 How HDFC Bank controlled its NPA growth over time.
 Any turnaround strategies implemented by both banks.
8. Compare Crisis vs. Normal Conditions
 Pre-COVID vs. Post-COVID impact on NPAs.
 Effects of RBI interventions (loan moratoriums, repo rate changes).
 If available, include financial crisis data (e.g., 2008 or other Bank's 2020 crisis) for a
comparison of past recovery strategies.
9. Break Down NPA Categories
 Gross NPA vs. Net NPA: Show how much bad loans are truly at risk after provisions.
 Sector-wise NPAs: Identify which industries caused the highest NPAs (e.g., retail,
MSMEs, corporate loans).
 Wilful Defaulters Analysis: Were large corporate loans responsible for other Bank’s
high NPAs?
10. Discuss Management & Governance Impact
 Include an analysis of leadership decisions:
 Other Bank's poor governance vs. HDFC’s risk-averse approach.
 Role of Rana Kapoor's lending strategies in Other Bank’s downfall.
 How HDFC’s conservative credit policies kept NPAs under control.
11. Case Study Approach for Key Events
 Add mini case studies on:
 Other Bank's bailout in 2020 and its effect on NPAs.
 HDFC’s risk management framework and its success in keeping NPAs low.

52
 12.Benchmark Against Global Banks
 Compare Other Bank & HDFC Bank's NPAs with international standards (e.g., JP
Morgan, HSBC).
 Mention how Basel III norms influence NPA management.
13.Use More Statistical Tools
 Correlation analysis: How closely are NPAs linked to profits?
 Regression analysis: Can historical data predict future NPA trends?
 Trend projections: Forecasting NPAs for the next 5 years (if possible).
14.Provide More Actionable Insights
 Suggest:
 How banks can reduce NPAs through AI & fintech innovations.
 Stronger credit assessment models to avoid future bad loans.
 Role of digital lending & fintech partnerships in improving loan quality.
15. Improve Data Interpretation
 Instead of just stating numbers, explain:
 What caused the change?
 What are the implications?
 What actions should banks take?

53
CONCLUSIONS:
The comparative analysis of Non-Performing Assets (NPAs) in HDFC Bank provides
crucial insights into how asset quality impacts the financial stability and long-term
sustainability of a banking institution. HDFC Bank’s sharp increase in NPAs was a
direct consequence of excessive exposure to high-risk corporate loans, inadequate
credit risk management, and governance failures. The bank’s inability to manage loan
defaults led to a liquidity crisis, forcing the Reserve Bank of India (RBI) to intervene
with a rescue package. In contrast, HDFC Bank maintained lower NPAs due to its
conservative lending policies, robust risk assessment frameworks, and a well-
diversified loan portfolio, demonstrating the effectiveness of strong internal controls
and prudent financial management.
The financial impact of NPAs was evident in the declining profitability and capital
adequacy of Yes Bank, which struggled to maintain investor confidence and
operational stability. The need for higher provisions significantly affected its balance
sheet, reducing the funds available for fresh lending. Meanwhile, HDFC Bank
continued to generate consistent profits, reflecting its ability to absorb potential loan
losses without compromising growth. A sector-wise breakdown showed that Other
Bank’s NPAs were concentrated in corporate and infrastructure lending, whereas
HDFC Bank’s focus on retail lending minimized exposure to volatile sectors, ensuring
steady asset quality.
The findings highlight the importance of risk mitigation strategies, regulatory
compliance, and proactive credit monitoring in the banking sector. Other Bank’s crisis
serves as a cautionary example of the dangers of aggressive lending without adequate
risk controls, while HDFC Bank’s performance reinforces the need for a disciplined
approach to loan approvals and portfolio diversification. Indian banks must integrate
advanced data analytics, AI-driven credit assessment tools, and strict due diligence
processes to prevent future NPA crises.
Overall, this analysis underscores that sustainable banking growth relies on a
combination of sound governance, well-structured risk management practices, and
regulatory vigilance. The contrasting trajectories of HDFC Bank reaffirm that long-
term financial health is built on prudent lending, diversified asset allocation, and
continuous oversight. Strengthening these aspects will not only enhance banking

54
stability but also improve investor confidence and economic resilience in the financial
sector.
This analysis underscores the need for banks to adopt advanced financial
technologies, strengthen credit evaluation processes, and implement proactive NPA
resolution mechanisms. Banks that integrate AI-driven risk assessment tools, diversify
their credit portfolios, and establish early warning systems for stressed assets will be
better positioned to manage NPAs effectively.
In conclusion, the study reaffirms that the sustainability and success of a banking
institution depend on a well-balanced approach to lending, risk control, and
regulatory adherence. Banks must strike a balance between profitability and asset
quality, ensuring that growth is achieved without compromising financial stability.
The lessons learned from HDFC Bank can serve as a guiding framework for the
broader banking industry to build more resilient financial systems and prevent future
crises.

55
BIBILIOGRAPHY

56
WEBSITES:
https://www.rbi.org.in/
https://financialservices.gov.in/beta/en
https://www.hdfcbank.com/
https://ibbi.gov.in//en
https://www.sebi.gov.in/
https://www.nseindia.com/
https://www.bseindia.com/
https://www.livemint.com/
https://www.moneycontrol.com/promo/mc_interstitial_dfp.php?size=1280x540
https://economictimes.indiatimes.com/industry/banking/finance

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