5.

1 Introduction

From the earlier chapters in the study, it is evident that banks have a very important role to

play in the economic development of the country. These are the institutions which channelize

the savings of the individuals and corporates into productive channels through loans and

various other investments, including equity and bond markets. The concept of NPA is

applicable both to loans as well as the investments made by the banks. However, this study is

confined to non-performing assets in respect of loans and advances. It has been seen that the

banks run an inherent risk when they loan out funds to various borrowers, be these corporates,

non-corporates or individuals. It was discussed earlier that before making any loans, the banks

must consider 4 C’s, i.e. Character, Collateral, Capacity and Conditions. These 4 C’s

ultimately can play a big role in mitigating the risk of high NPAs. There being an inherent

risk in giving loans, the possibility of such accounts turning NPA cannot be ruled out. But

what the study aims at is to find out as to how the growth of NPAs can be maintained within

reasonable levels both in the public as well as private sector banks.

In India, as discussed earlier, we have banks both in public as well as private sector. In public

sector banks, the majority of the shareholding lies with the government. Whereas in the

private sector, the majority of the shareholding lies with private corporates, individuals or

other financial institutions. In view of control levels being different, the banks under two

sectors differ in terms of capital structure, legal application, freedom to operate and the level

of competence. However, the banks under both the sectors in India are regulated by the

Reserve Bank of India.

As discussed in the earlier chapters, there are different factors which effect the level of NPAs

in both the sectors. The factors can be external as well as internal. External factors refer to the

character of the borrowers, natural disasters, slow down in economy and consequent industrial

sickness in any particular segment, failure of debt recovery tribunals, Lok Adalats, slow
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progress under SARFAESI Act, sluggishness in the international markets. Internal factors on

the other hand refer to the poor credit appraisal system in the respective banks, poor

monitoring, lack of interaction with the borrowers, poor tracking system with regard to the

past track record of the borrowers, inappropriate technological platforms leading to poor

management information system, delays in identification of NPAs, late reporting of frauds

etc. It has already been discussed that NPAs adversely impact the economic growth of the

country, as the funds available for recycling with the banks are reduced because of the NPAs.

The banks’ balance sheet reflects poor quality of assets, higher provisions, lower reserves and

the revenue statements show lesser income and higher provisions. All this leads to poor image

of the concerned banks. This at times lead to shift of customers particularly the depositors to

other banks.

Linking with objectives

Objective 1: To study NPAs of the selected banks

In chapter 1, non-performing asset (NPA) was defined as a loan or an asset which ceases to

generate income for the lender. As per RBI norms, a loan is to be considered as an NPA if the

interest or principal or both remain overdue for a period of 90 days or more. This is in respect

of the term loans, bills discounted and purchased etc. In the case of working capital limits, an

account is to be classified as NPA in case it is overdrawn for a period of 90 days or more, or if

the credits in the account are not sufficient to meet the debits of interest in the account. In case

of short-term crop loans, the same are classified as NPAs in case an installment remains

overdue for a period of two short term crop periods. Against this, in case of long-term crop

loans, the loan is classified as NPA in case the installment remains overdue for a period of

one long term crop. Long term crop period means a period of 12 months or more. What is a

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short term crop or long-term crop is to be defined by the State Level Bankers’ Committees in

the respective states.

The banks depict the loans and advances in their balance sheets based upon the security

available(tangible/intangible), the nature of advances, i.e. term loans, cash credits, demand

loans, bills discounted and purchased etc. Also, government guaranteed loans are depicted

separately. Banks are required to disclose the non-performing assets and the provisions in

respect thereof in a transparent manner. RBI also requires the banks to disclose the movement

of provisions in respect of NPAs to give a fair idea to the reader of the financial statements as

to how the provisions for NPAs have gone up or declined during the year concerned. RBI also

requires the banks to disclose the movement of NPAs particularly with a view to show

upgradations in account if any, recoveries and write offs.

The concept of NPAs has evolved over a period of time in the Indian financial structure. From

early 70s till 90s, the provisions were made primarily based upon the security available in

case of the loan. It was more of a judgmental issue as to when to create a provision rather than

based upon any stipulated norm by Reserve Bank of India. The consequence was that the

banks used to shy away from creating adequate provisions and the recoveries kept on going

down. In 1992, following Narsimhan Committee recommendations, Reserve Bank of India

introduced prudential norms with regard to classification of advances and recognition of

income. These norms stipulated that wherever the recoveries were not forthcoming in respect

of interest or principal or both for a specified period, the account had to be classified as a non-

performing account and the income recognition in respect of such account was to cease.

Chapter 1 has already discussed the prudential norms with regard to classification of various

loans. Over a period of time, these norms have stabilized. However, still there are certain

glitches in the banking system which need to be plugged with regard to identification of

NPAs.

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Whereas at present the classification and provisioning of NPAs is based upon prudential

norms, now there is a talk of IndAS (accounting standards equivalent to IFRS) to be

introduced in the banking system. It was to be implemented effective 1 st April 2018, but

because of various factors and particularly keeping in view the slowdown in the economy and

pandemic, the implementation of the same has been kept at hold for the time being. It is

estimated that implementation of IndAS in the banking industry would significantly impact

the provisioning in respect of NPAs. The provisions will go up further and the government

may have to shell out a good amount of money to make good the capital adequacy ratio

particularly in case of the public sector banks.

In the earlier days, the measures to control the NPAs were more being persuasive in nature.

The lenders were contracted to clear the shortfall in recoveries,failing which the collaterals

available with the bank were put on sale. There were two problems in this, firstly the auction

of the properties was not found to be an easy preposition and secondly the liquidation value of

the assets under distress sale was observed to be very low and the banks had to suffer huge

losses as a consequence thereof. Also, the legal system in the country was flawed. The banks

even after filing suits were unable to make much headway because of the delaying tactics by

the borrowers and even if the decrees were obtained by the banks, these decrees remained

pending for execution for years together.

Despite the fact that both public and private sector banks have NPAs, it is observed that the

private banks have been able to manage the NPA menace better compared to their

counterparts in the public sector. The position of NPAs in the two sectors has already been

discussed in chapter 2 and chapter 4. Whereas public sector banks are supposed to meet social

objectives also, private sector banks are run merely for the profit motive. This also causes

disparity in the NPA level of the banks in the two sectors. It was discussed in chapter 2 that

whereas the private sector banks have approximately 35% of the banking business share in the

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country, but such banks opened only 5% of the accounts under the PM Jan Dhan Yojana

Scheme which naturally meant a higher burden of servicing such accounts to the public sector

banks.

Objective 2: To Identify NPA Trends in Last 7 Years in Private and Public Sector

Banks

Though the concept of NPAs and the system of their identification seems to have stabilized

ever since its introduction in 1992,yet there are reports of late identification of NPAs, non-

identification of NPAs, non-declaration of frauds in time due to various reasons, both in

public as well as private sector banks and consequent under-provisioning in respect of the

same. Reserve Bank of India has stipulated that all NPAs shall have to be identified through

the system and there should be no manual intervention in the process. RBI has stipulated 30 th

June 2021 as the last date for this action on the part of bankers, failing which stringent action

will be taken against the defaulting banks.

The banks have not been disclosing the right amount of NPAs. Reserve bank of India in last

few years has been able to identify divergencies in NPAs as reported by the banks and

inspectors of RBI. This is true for banks in both the sectors. Despite all this, the banking

industry has a total NPA of INR 8,99,802 crores as on 31 st Mar’2020 out of which public

sector banks account for INR 6,78,317 crores working out to a percentage of around 75%.

In public sector banks, the officials for the purpose of meeting the targets set by the

government at times shore up the topline as well as the bottom line. This trend has now

caught up with the private sector banks also. It may be worthwhile to note that post retirement

postings, elevations, other assignments to the officials of the public sector banks may be

dependent upon the depiction of the figures which lead to these kinds of situations. Despite

all this, the non-performing assets have continued to show a surge. The quality of the assets

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has been shown to be better. It may be relevant to note that loans to the agricultural sector of

around INR 11.5 lakh crores as and when subjected to stringent scrutiny will bring out a much

higher level of NPAs. This may also be due to the Government pressure to allow free flow of

credit to agricultural sector. Similarly, loans to power distribution companies in the range of

about INR 6.5 lakh crores are also showing stress due to various reasons and may have to be

bailed out sooner or later. In the last 7 years, certain accounts were not classified as non-

performing based upon the special dispensation given by the Reserve Bank of India in such

cases. Also, there have been practices in banking industry to keep the balance sheets healthy.

There have also been cases of collusions between bankers and the borrowers with a view that

such borrowers continue to enjoy the credit from the banks. The banks continued to help each

other by sanctioning additional facilities to ease the stress in the other banks by transfer of

funds in respect of the additional facilities. This was a practice similar to ‘you benefit me and

I benefit you’. However, Mr. Raghuram Rajan, Ex- Governor, ReserveBank of India took a

serious view of this entire matter and directed his officials to conduct an asset quality review

for the entire banking sector. This exercise revealed the practices as enumerated above and

upon classification of such NPAs, the NPA level in the banks under both the sectors went up

considerably.

Objective 3: To Identify the Factors Causing NPAs in the Six Selected Banks

During last few years, the Indian economy has been in a slowdown mode. In last two years,

pandemic has worsened the situation and has resulted in negative growth in certain sectors

like manufacturing, hospitality, amusement, [Link] agricultural sector, all other sectors

have gone through some stress or the other. Besides this economic slowdown in this

pandemic, there are other factors causing high NPAs. These factors can be internal or external

to banks.

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External Factors

Following are some of the important external factors causing NPAs:

1. Economic slowdown and pandemic in the last two years

2. Frauds by corporates by Siphoning of the funds and in certain cases parking such funds

abroad

3. Political interference in sanction and restructuring of loans

4. Bureaucratic delays in approval of land allotments particularly in case of infrastructure

projects causing delays and time and cost overruns in implementation of such projects

5. Window dressing of balance sheets by corporates

6. Filing of fudged figures by borrowers for procuring the loans

7. Exaggerating rating by the rating companies at the time of sanction of loan

8. Higher valuation of collaterals by the valuers

9. False title search reports by some of the lawyers

Above mentioned factors caused NPAs both in the public sector as well as private sector

banks. However, the corporates also suffered in their business due to slow down in the world

markets and also at times because of natural [Link] in the other world economies

led to poor exports and in certain cases lack of availability of products for imports, thereby

having an adverse effect on the trade and commerce in the country. Rupee continued to suffer

in value compared to dollar. This benefitted the exporters to an extent but caused lot of losses

to the importers and also pushed up the cost of the various projects wherein imported plant

and machinery was to be installed. This created a situation of cost overrun and consequent

request from the corporate sector to the banks for enhanced loans. At times, these

requirements were looked at favorably, and at times, delayed action led to languishing of the

projects. Corporates suffered quite heavily due to delays in allotment of land, plan sanctions,

environmental clearances etc. This caused NPAs in the infrastructure and real estate in
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particular. To add to the woes of the corporate sector, telecom scam andcoal scam were

unearthed and licenses and allocations were cancelled in these two sectors, thereby causing

viability problems in these sectors. This also had an adverse effect on the NPAs in the

infrastructure sector. Iron and steel and the power sectors of the country have been severely

affected by different events such as ban in the mining, delays caused in acquisition of

different permits related to the environment. These have caused volatility in the cost of raw

materials and also shortage of the availability of sufficient power. Therefore, the performance

of the corporate sector has been highly interrupted and impacted, which has resulted in their

inability of their paying back the loans. Iron and steel sector has also suffered because of the

low-cost imports from China.

The banks in India have to follow many regulations during their course of actions. One of

these regulations is the Priority Sector Lending (PSL), which requires the banks to provide a

certain percentage of the loans to some specified sections of the society at specified rate of

interest. The farmers, minority classes like the Scheduled Castes (SC) and the Scheduled

Tribes (ST), fall under this specified section of the society. It is very natural to think that the

social sections, which are covered under the PSL are to be blamed for this critical situation,

but it is not true. According to the recent reports regarding NPAs, the standing committee on

Finance is checking and verifying the real reasons behind the NPAs being so high in the

private sector banks. According to the data shared by the standing committee, the NPAs are

much higher in corporate sector when compared to the priority sector or the agriculture sector.

It may be interesting to note that incremental ratio of NPAs is higher in the micro, small and

medium enterprises (MSMEs) compared to the agriculture sector. Lower incremental rate of

NPAs in agriculture sector could also be due to the hidden NPAs. However, a danger looms

large particularly with regard to MSME sector after the restructuring period on such loans as

granted by the RBI last year due to pandemic shall be over. The government guaranteed loans

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worth INR 3 lakh crores for the MSMEs as a part of financial incentives to combat the

pandemic situation. It is learned that MSMEs have used these top up loans for either repaying

the existing defaults with the banks, thereby enabling the banks to show a better income and

lesser NPA level, or they have borrowed the loans without being subjected to end use of such

loans being verified. This can result into a tricky situation once the restructuring period is

over. The banks may be under a comfort level that such loans have been guaranteed by the

government and any default in respect thereof shall not have an adverse effect upon their NPA

level and the provisioning in respect thereof. However, looking at the entire financial budget

position of the country, it may be difficult for thegovernment to give financial support to

banks in case of such defaults in cash. The capital infusion may take the shape of investment

by the banks in the bonds of the government. This would lead to a situation that capital

adequacy of the banks may remain intact but the availabilityof the funds for recycling may be

reduced considerably. It is also observed that the educational loans given with all noble

objectives are having huge rate of defaults. SBI itself has 20% of such NPAs of the total

banking industry.

INETRNAL FACTORS

Ever since the economy opened upunder Mr. PV Narsimha Rao’s government with S.

Manmohan Singh being the finance minister in that period, the economic activity in the

country picked up substantially and has not looked back since then. Last 30 years have been a

period of large number of new projects being launched in manufacturing, infrastructure, real

estate, power, telecom and other sectors. This led to huge demand of credit from the banks.

The kind of lending which took place between 2004 to 2010 was never witnessed by the

country earlier. To an extent, it was indiscriminate lending as well. All this coupled with the

factors enumerated hereunder have caused huge NPA levels in the banking industry:

1. Lack of skills on the part of commercial banks to evaluate infrastructure projects

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2. Poor credit appraisal system in respect of loans other than infrastructure projects

3. Non verification of past track record of the borrowers and their relatives

4. Poor monitoring

5. Non scrutiny of the financial information filed with the banks

6. Lack of advanced management information system which otherwise could have provided

timely alerts

7. Wait and watch approach on the part of the bankers with a view to keep the account in

performing category

8. Multiple restructuring of accounts

9. Allowing overdrawalunder accounts considering the problem to be of temporary nature

10. Failure to conduct a proper technical and feasibility study particularly at the time of

restructuring of the projects

11. No real time information availability with the bankers with regard to the accounts

12. Ineffective SWOT analysis of projects- Not being able to evaluate the threats properly,

e.g. The overcapacity creation in case of power projects, non-approval of land allocation till

the last mile in case of certain infrastructure projects.

The factors enumerated above particularly with regard to lack of skills to evaluate the projects

are more relevant to public sector banks. Private sector banks have been able to devise better

monitoring mechanism because of adoption of technology right from word go. In general, the

bankers in the private sector keep interacting with the borrower and their staff members and

are able to get better alerts in time compared to the public sector bankers. This may also be

due the fact that private sector banks allow greater freedom to their staff members. As

regards, failure of restructuring of the various projects, this is true for both the public as well

as the private sector banks. Most of the large loans are under consortium. As and when the

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restructuring has to take place, it happens at consortium level and accordingly if the

restructuring fails, it fails for all banks in consortium irrespective of the sector.

Whereas one has said that the technology in public sector banks is not as advanced as in

private sector banks, it may not be wrong to mention that public sector banks of late are

investing heavily in the technology and probably in the years to come, they may be able to

create better technological environment, thereby improving the control over NPAs.

Objective 4: To Analyze a Comparative Study of NPAs of Public Sector and Private

Sector

It is very important to compare the NPAs of the different banking sectors, viz. private sector

banks and public sector banks. It helps in understanding the fluctuations that are taking place

in the rate of increase in the NPAs in both the sectors. It also helps in understanding the

significance of various factors of increase of NPAs in the banks. It also helps in having better

understanding of NPA management in banks under two sectors. The concept of NPA is very

important while assessing the profitability of the banks and their performances. The growth of

NPAs is different in these two sectors as the banks from these sectors differ in their

capabilities, objectives, flexibility in operations, actions etc. This is why, it is important to

have a comparative study on the rate of increase of NPAs in different banking sectors. The

comparative study also helps in understanding which sector of the banks is more vulnerable to

the growth of NPAs. Hence, the comparative study has been performed by using different

statistical data, which will help in making the comparison more accurate.

The NPAs impact the profitability and performance of the banks. Higher NPAs impact the

sentiments of the banker adversely. As the NPAs rise, he starts feeling shy of granting new

loans. He tries to seek risk free proposals which are rare. In public sector banks, the risk of

facing 3 C’s, i.e., CVC, C&AG and CBI is much higher and has proved to be detrimental to

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the motivational level of the public sector bankers. As the level of NPAs go up, the banker

becomes risk averse and tries to advance the money only against extremely sound collaterals

or increases the value of the collateralnumber of times compared to the loan amount. E.g.

Whereas earlier he might have granted a loan of Rs. 100 against a security of Rs. 125, he

starts looking at collaterals of Rs. 250 or more. The borrowers not being able to provide the

same are deprived of the credit and that effects the economic activity in the country adversely.

Higher NPAs push up cost of capital. The worst effect of higher NPAs is that bankers

particularly in the public sector start rejecting the genuine business proposals which is

dangerous from the growth perspective of an economy.

It can be noted from the data collected through the mining of the data sources, that the GNPA

and NNPA of the public sector banks has been increasing at a higher ratethan the private

sector banks. An increasing trend has been observed in public sector banks till 2016, a

decrease in most banks in year 2017, with another increase observed in 2018. Year 2018 saw

an exceptional hike in the NPA level. The NPAs relatively reduced as compared to year 2018

thereafter.

Similar to the public sector banks, the growth of the GNPA and NNPA also goes on for the

private sector banks also. However, the fluctuation in the increase rate has not been as high as

for the public sector banks, with the major increase in year 2018 and a decline thereafter.

In order to understand the correlation between the NNPA of the private and the public sector

banks, we have considered a hypothesis, that is:

There is no existence of any significant relationship between the Net NPA of the private sector

banks and the public sector banks.

In order to substantiate the hypothesis, we have calculated the value of the correlation

analysis, in which, if the value is between -1 and 0, it refers that there exists a negative

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correlation. On the other hand, when the value of the correlation remains between 0 and 1, it

refers that there exists a positive correlation. Here, the calculated value of the correlation has

been found to be 0.96, which means there exists a positive correlation. The analysis reveals

that if there exists any increment in the Net NPA of the public sector banks, the increment

also takes place in the private sector banks, as the Net NPA of the private sector banks also

increases. Hence, it can be derived as the considered hypothesis regarding the correlation has

been rejected.

A comparative study conducted on the recovery of the NPAs using different channels has

revealed a significant data which also helps in the comparative study of this research. It has

been noted that in the year 2012-13, the total amount involved for recovering the NPA has

been around INR 105,700crores, while the total amount recovered has been only about INR

23,300crores, making a recovery of only 22%. In the year 2013-14, the total amount involved

for the recovery of the NPAs was around INR 1,73,800crores, while the total recovery was of

around INR 32,000crores, making it a recovery of only 18%. In the year, 2014-15, the total

amount involved was aboutINR 248,200crores, while the total recovery was only of about

INR 30,800crores, making it a recovery of only 12% of the total amount. In the year 2015-16,

the total amount involved for the recovery of the NPA has been around INR 221,400crores,

while only INR 22,800cores was the recovered amount, making it a recovery of only 1.2%. In

the year 2016-17, the total amount involved for the recovery was around INR 286,000crores,

while the recovered amount was only INR 28,000crores, which is only 9.7% of the total

amount. While the amount involved for recovery in year 2018-19 was around INR 726,000

crores, the amount recovered stood around INR 118,600 crores, which was 16.3% of the total

amount. Further, in year 2019-20, while the amount to be recovered was around INR 742,400

crores, recovery made was around INR 172,560 crores, being 23.2% of the total recoveries.

Thus, it can be noted from this data, that the amount involved for the recovery of the NPAs in

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year 2012-13 was lower than the amount involved for recovery in 2016-17, with the amount

involved for recovery decreasing gradually. Similar trend is observed in case of percentage of

recovery, with a higher recovery percentage of 22% in 2012-13, decrease to 9.7% in 2016-17,

ultimately increasing to 23.2% in 2019-20. However, such rate of recovery is not satisfactory

and needs to be improved significantly to ensure that the banks don’t lose too much of money.

Hence, it can be considered that the extent of NPA is higher in the public sector banks when

compared to the private sector banks. The government has taken various steps in order to

bringdown the extent of NPAs, yet there is much more to do to lower it further. As the extent

of the NPAs is higher in the public sector banks, the government has to make regulations,

which would provide a faster solution for settlement, as well as reducing the activities of

mandatory lending to the priority sector, which is the main area behind this problem. Delay or

inability to solve this problem in time may result in limiting the growth of the Indian banks,

which would result into the slowdown of the Indian economy. The demotivated attitude of the

employees of the public sector banks towards their duties cause negative impacts that support

the growth of [Link] example, adopting a careless attitude while performing the credibility

check, which leaves gap through which many fraudulent and incapable customers pass.

However, this ignorant attitude affects the performances of the banks when the customers

become incapable or unwilling to repay the instalments of the loans, and thus the loan turns

into an NPA.

Objective 5: To review the NPA trends of the selected public and private sector banks

The review of the NPA trends of the selected banks is very necessary, as they help in

understanding the market situation of those banks. In order to understand the NPA trends of

the selected banks, they have been analysed individually.

STATE BANK OF INDIA

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The NPAs of the State Bank of India have had severe effects on the performances of the

banks, which can be understood by analysing the performance indicators. There has been

significant growth in the number of NPAs of SBI over the years, which has affected the

performance of the bank. The statistics show that the bank had gross NPAs worth INR 56,725

crores in the year 2015, which had increased to gross NPAs worth INR 1,26,389till year 2021.

This reflects a substantial growth in the number of NPAs of the bank. The net NPAs had also

increased from INR 27,591 crores to INR 36,810 crores from the year 2015 to 2021. The

growth in gross NPAs was continuous over the years till 2018, however the level started

decreasing thereafter. The highest provision for NPAs in 2018 that stood at INR 75,039 crores

was a result of change in requirement for providing a minimum of 50% provision in respect of

secured NPAs and a 100% provision in case of unsecured NPAs where the cases have been

referred to NCLT under Insolvency and Bankruptcy [Link] stipulation made the RBI led to a

surge in NPA levels. Another reason for the surge in values in terms of branches, NPA level

deposits and advances etc in case of SBI in year 2017-18 has been the merger of the bank

with five of its associates and Bhartiya Mahila Bank. The growth in the number of branches

has significantly slowed down with the passage of years after the merger. The bank made

effort to stabilise the NPA levels and improve the overall performance of the bank by

reducing its gross NPA level and improving its net interest [Link], the picture may

not be very clear due to series of events of merger and pandemic situation thereafter. The

actual position of the bank in terms of its performance and improvement post-merger shall be

clear once the pandemic is over.

CENTRAL BANK OF INDIA

Among all the public sector banks, the Central Bank of India is on the topmost position in

terms of the number of NPAs. The source data provided by the Reserve Bank of India narrates

that the 21.5% of the total assets of the bank have either turned into NPAs or have been

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restructured in order to stop them from turning into NPAs. The growth of the NPAs of the

bank is also high. In terms of gross NPAs, the growth rate has increased from 6.1% in the year

2015 to 16.6% in the year 2020-21. The bank has also faced a massive net loss, amounting to

INR5,642 crores in the year 2018-19 as the rate of the provisions increased from 26.83% in

2017 to 44.22% and 44.9% in 2018 and 2019 respectively. While the gross NPA of the bank

stood at INR 27,251 crores in March 2017, it elevated to INR 32,589.08 crores in March

2020. Thus, it can be noted that the gross NPA of the bank has been continuously increasing

over the years. On the contrary, the net NPA of the bank stands at INR 14,218 crore in March

2017, while it came down to INR 11,534 crore in March 2020. It shows that the value of the

net NPAs of the bank has been decreasing over the years. However, the reason of such

decrease is the rise in the quantum of provisions provided for in the later years, with

provisions to the extent of 44% and 50% in year 2017-18 and 2018-19. Further to add, year

2017-18 saw a surge in the increase of provisions throughout the banking sector to the

introduction of new norm requiring to create additional provisions in cases that are referred to

NCLT under Insolvency and Bankruptcy Act. The earnings per share of the bank are negative

since year 2016 and no dividends have been distributed by the bank since then. Further, by

looking at the negative return on assets ratio, it is definite to state that the bank has been

getting negative returns on its assets due to the financial losses. It also results in fluctuations

and hinderances in the performance of the bank in the stock market.

BANK OF BARODA

Though the operating profits of the bank have seen an increasing trend, the net profit of the

Bank of Baroda declined and even turned into losses due to high provisioning and larger pool

of NPAs during the period covered in the research. The provisions of the bank in terms of

percentage crossed 30% in year 2015-16 and 2017-18, resulting into losses to the bank. Even

the deposits saw a negative growth in the said two years. To add to it, the return on assets was

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negative in those two years. The return on capital, though negative, but improved to -0.5% in

2018-19 from -1.8% in 2017-18, and improved further to 0.06% in 2019-20.

The capital adequacy ratio of the bank was 14.2% in 2015-16, dropped thereafter to around

12% in 2016-17 and 2017-18, revived back to 13.4% in 2018-19 and reached 15% in 2020-

21. Despite suffering losses, the bank was able to maintain its capital adequacy ratio by

introducing additional capital from time to time. The government holding of the bank has

increased form 57.5% in 2015 to 71.6% in 2020 due to recapitalisation. EPS is observed to be

negative in year 2016 and 2018, while positive in other years. Further, the branches of the

bank saw a decline of around 13% in 2020-21 with a drop from 9,482 branches to 8,214

branches.

HDFC BANK

The performance regarding the NPAs of the HDFC bank is the best among all the selected

banks. As compared to the other banks in public as well as private sector, HDFC bank has

reported the lowest gross NPA ratio of about 1.3 or 1.4 percent. Moreover, the bank has

always managed to maintain its capital adequacy with the highest in the last 7 years being

18.8%. Despite the increasing numbers in the provisions created by the bank and the

increasing NPA level on year-on-year basis, the net profits of the bank have shown an

increasing trend since 2015. The bank has been expanding in terms of capital, number of

branches and profits. The had 4,014 branches in 2015 which has increased to 5,608 branches

in last 7 years. The earning per share of the bank has increased from 20.4 in 2014-15 to 56.4

in year 2020-21. The bank has been consistent in distributing dividends at a rate of around 38-

40% till 2018-19.

Out of the banks chosen for research, HDFC is the only bank where the NPA recoveries

between year 2015 to 2019, year 2020 being an exception, is more than the amounts of NPA

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written off. EPS of the bank has been rising steadily with EPS of INR 20.4 in 2015 to INR

56.4 in 2021. The bank has been regular in making payment of dividend, except in year 2020,

with a pay-out ratio of around 39% during years 2015-2019 and 11.5% in 2021.

The figures of the HDFC bank clearly shows the efforts made by the bank to generate profits,

minimise/maintain the NPA level and to improve the overall performance of the bank.

ICICI BANK

It can be seen from the statistics that the gross NPA value of the ICICI bank was INR 15,095

crores in the year 2015, while the value increased to INR 54,063 crores till 2018. It saw

gradual fall since then and reached INR 41,373 crores in 2021. The net profits of the bank saw

a decline in year 2017-18 and 2018-19. The provisions of the bank reached around 31% in the

said years. The rise was a result of RBI stipulation to create additional provisions in case of

cases that are referred to NCLT under Insolvency and Bankruptcy Act.

Additional equity capital has been raised by the bank from time to time, with an objective to

strengthen its capital adequacy ratio, which stands between 16.1% to 19.1% in the last 7

years. The advances and the deposits of the bank have bene increasing at a fluctuating rate

since 2015. In year 2017, the bank expanded its network to 4,850 branches and 13,883 ATMs,

being the largest network among private sector banks.

While the EPS of the bank declined till year 2019 ever since year 2015, it started increasing

thereafter. The bank has been regular in distributing dividends since 2015, except in year

2020.

ICICI bank suffered damage to its reputation based upon anonymous complaint, an enquiry

concluded that MD of the bank, Ms Chanda Kochhar had violated the bank’s code of conduct

regarding conflict of interest and due disclosure or recusals, for which she was terminated

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from service. Of late, overseas operations of the bank have also started showing some kind of

stress. This is of course one bank with technological upgradation.

AXIS BANK

Fluctuating trend in the performance indicators of Axis Bank has been observed, with the

major fluctuation in year 2017-18, with all time low net profit of INR 276 crores, highest

provision amount of INR 15,473 crores at the rate of 33.8%, an all-time high addition of INR

33,419 crores to NPAs, fall in deposits and return on assets ratio. However, the adequacy ratio

of the bank improved due to addition in the capital of the bank. The write offs of NPAs of the

bank have been more than the recoveries made by the bank in most of the years, therefore

write off being the reason for reduction in NPA level.

The EPS of the bank declined from 2016 to 2018, reaching its all-time low to earning of INR

per share in 2018, improving to INR 18.2 in 2019, declining to INR 5.8 in 2020 and improved

again to INR 21.5 in 2021. With the eventual decline in the earning per share of the bank, the

bank did not distribute dividends in year 2018, 2020 and 2021. However, positive signs in

terms of the presence of the bank has been observed, with 2589 branches in 2015 and

reaching to 4,594 branches in 2021.

Objective 6: Suggestions on Various Measures for Efficient and Effective

Management of NPAs in Banks

The NPA management refers to various steps that the banks may take to keep NPAs under

check. It may not be possible for any bank to eliminate the NPAs altogether but the aim has to

be to keep them at the lowest possible level. This would ensure better income to the banks and

also would facilitate the economic growth of the country.

There are two possible approaches available for management of the NPAs. These are:

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i) Preventive Management

ii) Curative Management

Preventive management refers to all those steps that the banks may take internally to ensure

that the occurrence of NPAs is at minimum rate. As stated earlier, NPAs cannot be eliminated

but can be managed. It is observed that substantial amounts of NPAs arise due to poor credit

appraisal, poor monitoring, lack of alerts, delays in restructuring, frauds etc. It is essential to

take the following steps to have preventive management of NPAs in the banks:

1) Credit appraisal teams should be competent to understand the projects and the needs for the

funds of the borrowers. The team should also be able to track the past antecedents of the

borrowers and their relatives. These days track record of the borrowers is available through

CIBIL and a reference thereto needs to be made under all circumstances to access the credit

rating of the borrower. Credit appraisal team should also be able to understand the market

conditions with regard to the business of the borrower and also should be able to understand

and work out the impact of present and future government policies on the business of the

borrowers. Credit appraisal team should have technical as well as financial people in the team

so as to ensure that both the technical as well as economic feasibility of the projects can be

understood and worked out properly. Credit appraisal teams need to ensure that the proposals

are acted upon in a timely manner without loss of time to ensure that there is no delay in the

execution of projects or meeting the working capital requirements of the borrower. Credit

appraisal team should also be able to assess the value of collaterals or at times, in case they

find the promoters to be people of integrity, to dispense with some of such requirements. In

the case of pre-shipment credits, the bankers need to verify the genuinity of the export orders

and the LCs brought before them by the exporters. Pre-shipment credit has to be liquidated

out of the proceeds of the post shipment credit. It may be better for bankers to insist upon the

personal guarantees of the promoters. This puts promoters on some kind of alert.

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2) One of the most important measures in preventive management is to ensure the

compliance with various terms and conditions of sanction before the disbursal of loans. Once

the loan is disbursed, it is the banker who is at the mercy of the borrower to comply with the

[Link] times, the borrowers defrauded the banks for want of various documents which

should have been executed before the disbursal of loans.

3) Another measure of preventive management is the effective monitoring of the loans post

disbursal. It has been observed that at times the banks are not able to ensure the end utilisation

of funds which results in non-creation of securities or diversion of funds to the related parties

of the borrowers from where the funds are siphoned off. In the case of working capital limits,

the management of the bank needs to ensure that no part of the credit facility is used for

acquisition of capital assets which would put the liquidity of borrower under stress. Effective

monitoring would include regular inspections of the borrower units by the officials of the

bank or other authorised representatives of the bank. One of the most important flaws in the

monitoring system has been observed with regard to lack of obtention of financial statements

and other information of the party in time. And even if received, these are hardly scrutinised

for the reliability and authenticity of those figures. This is particularly true in respect of

figures submitted for the inventories, debtors, creditors, investments etc. Bank’s management

need to scrutinise all the figures and in case of any divergencies observed, need to seek

explanation of the borrower for the same. It may not be out of place to say that a large number

of frauds in the banking industry could have been avoided but for better monitoring of the

advances. These days, the banks have advanced technological platforms and large number of

exception reports are generated including reports with respect to number of times the account

has remained overdrawn. Such exception reports need to be scrutinised to take remedial

actions. Wherever the same borrower is having a domestic market as well as international

market for his products and is enjoying the pre-shipment credit (packing credit) and cash

credit, there is a need to monitor the stocks earmarked for the two markets very carefully.
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4) Figures submitted at the time of submission of proposals or renewals need to be scrutinized

very carefully. Banks have been defrauded due to inappropriate renewals of various

proposals. There have been cases where despite decline in sales and income in the past few

years, the upward figures for the subsequent periods have been accepted without much of

scrutiny and thereby putting at disposal of the borrowers the funds which could have been

avoided. Whenever the operating cycle of the borrower is getting elongated due to build-up of

debtors, creditors, inventories, and causing need for higher working capital, banks need to

take extra precaution. Also, it is pertinent to note that at times the renewals and the reviews of

various accounts have been subjected to lot of delays, thereby causing stress in the accounts.

Timely action in such cases could have prevented an account from turning NPA.

5) At times restructuring proposals are received from the parties but the bank adopts a policy

of wait and watch rather than taking immediate measures to rehabilitate the account.

Restructuring delays can be fatal to the health of the account, thereby causing financial losses

to the bank as well.

6) It is important that the bank officials keep interacting with the borrowers and their staff

members to obtain first-hand information with regard to the operations of the borrower. At

times it will be important for the bankers to gather information from the informal channels in

the market as to how a particular borrower is conducting himself. This will give timely alerts

and probably could avoid lot of NPAs.

7) Bankers need to study the auditors’ reports which may give indications with regard to an

account running under stress. Any reporting by the auditors with regard to statutory non

compliances, non-registration of properties in the name of the borrowers, defaults in

repayment of loans, diversion of funds, weaknesses in internal control system, loans and

investments to related parties etc. can be of great understanding for bank for giving immediate

attention to such accounts and seek explanation from the concerned borrowers. This would

help in mitigation of risk of an account turning NPA.

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8) Information in the financial statements with regard to delayed projects of the borrower and

the time and cost overrun in respect thereof could be matters of great interest to the bankers

with the view to control NPAs.

9) In case of consortium loans, thebanks need to exchange information amongst themselves

on an honest basis to send alerts with regard to particular borrowers and in case any remedial

measure is required, the same be undertaken immediately. For this, consortium meetings need

to be held on a regular and serious basis.

10) Banks need to focus more on cash flow rather than the profitability being reported by

the borrowers. Profitability might be important, but more important is the cash generation in

absence of which, service of interest as well as principal could be problematic. Financial

statements include cash flow statement and an effective study thereof is of great importance to

understand the possible stress in the account. Cash flow statements may reflect outflow of

funds into capital projects without adequate inflow of long-term funds which would indicate

diversion of funds. Cash flows will help the bankers to assess the capacity of the borrower to

service the interest and principal so as to be in a position to meet some contingencies in case

these arise.

11) It may be appropriate on the part of banks not to allow operation of too many current

accounts to a borrower who is otherwise enjoying the cash credit limits.

12) Wherever a borrower approaches a bank with whom he does not enjoy the credit limits,

discounting of letters of credit and bills need to be avoided.

13) Whenever the borrower approaches the bank for additional funds on the pretext of

shortage of funds, the bankers need to keep in mind that the stress is not always because of

shortage of funds available, rather the stress could have been caused by dubious transactions

of the borrowers in diversion of funds particularly to the related parties.

14) Lenders are defined as entitiesextending credit in the national and international business

environment. Lenders have been lending both on fund based as well as non-fund basis. Of
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late, the bankers had issued standby letters of credit (SBLC). SBLCs were discounted in a

foreign market and were utilised to repay the loans of the bankers who had either issued the

SBLCs or certain other bankers wherein the borrower would have otherwise defaulted. This

led to a situation wherein a loan continued in perpetuity. A major fraud in the banking

industry was detected in the form of Nirav Modi case, wherein one bank, i.e. PNB alone was

defrauded by more than INR 11,000 crores. So, it is important that wherever the SBLCs are

being issued, it is to be ensured that the discounting of it is not utilised to repay the existing

loans. Wherever the Letter of Credits get devolved frequently, there is a need to look into the

reasons of such devolvementsimmediately and to take all possible remedial actions. It is

observed that in the banking, despite certain LC devolvement, LCs were issued subsequently

as well, and the bank suffered huge losses as a consequence thereof. This needs to be

prevented.

15. There is an urgent need, particularly in case of public sector banks, to improve the skill

set of employees. Public sector bank’s employee’s average age is higher compared to private

sector banks which are new generation banks. In recent years bank have adopted technology

in big way to improve efficiency on various banking aspects. Private sector banks having

hired the younger generation find themselves in an advantageous position. Public sector banks

would do well to encourage golden handshake with employees unwilling to adopt technology.

Alternatively employees willing to adopt technology need to be trained and incentivised with

out of turn promotions. Also there is a need to improve the skill sets of employees in credit

appraisal rating of borrowers, monitoring etc. Legal departments of banks need to be

strengthened to act effectively and in a timely manner to effect the recoveries.

16. RBI has been insisting upon system based identification of NPA’s . It has set 30thJune,

2021 as the deadline for all banks to comply with it. It will ensure timely identification of

NPAs. More importantly system should be able to identify the Special Mentioned Accounts

(SMA) at various stages. It will enable banks to identify potential NPAs and contact the
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borrowers in time for necessary remedial measures in time. This is an essential part of NPA

management.

17. Govt. needs to be more consistent an its infrastructure project policies. There have been

issues with regard to land allotment, right to way etc. These have proved to be major

bottlenecks in implementation of infrastructure projects and consequential time and cost over

runs resulting in to creation of huge NPAs.

18. Banks may devise their own policies for appreciating the honest borrowers and providing

them the incentives. These incentives could be in the form of lower rate of interest in respect

of their new projects, certain discount in the interest rates in respect of existing loans.

However, this kind of an action may be fraught with the danger of certain collusions between

bankers and the borrowers to window dress the repayment positions with a view to pass on

undue benefit to certain borrowers.

19. Bankers need to institute and follow an effective system of verification of securities,

concurrent audit of borrowers etc. Important aspect of this measure would be that the reports

given by such agencies need to be acted upon in a speedier manner.

Policy for engagement of recovery Agencies has already been laid down by almost all the

banks. NPA accounts (whether non-suit filed or decreed) with outstanding up to Rs. 10 lac are

eligible under the scheme. Moreover, written off accounts can also be entrusted to recovery

agencies to effect recovery. The progress of the recovery agencies can be monitored at and

may be reviewed by the board on annual basis. There is a need to implement the scheme with

greater vigour and proper planning. It should also be ensured that optimum number and

proper mix of accounts is allotted to each recovery Agent and their bills are settled promptly.

In order to overcome the difficulties being faced in the field, policy on Engagement of

securitization /reconstruction companies (SC/RCs)/ firms/companies/ other than

SC/RCs/Retired bank Employees as resolution Agent has been formulated by the Banks.

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As per provisions of the SARFAESI Act, apart from the appointment of,, Valuers for taking

assistance to enforce the security interest, bank may also outsource various types of services

from approved Supporting agencies viz.

I. Pre-take over examination of identified units/assets including survey.

II. Facilitating bank in seizure of securities/taking possession of movable and immovable

assets.

III. Obtaining assistance of District Magistrate/Metropolitan Magistrate for taking over

possession of securities

IV. To provide securities for prevention and protection of assets taken in possession.

V. To act as a custodian of secured assets.

VI. Assisting bank for sale of assets taken in possession trough auction or otherwise.

20. In cases of quick mortality accounts, i.e., where the accounts turn NPA within one year of

their sanction, there is a need for the bankers to get into the reasons thereof, and take

appropriate actions. As soon as such accounts start showing signs of stress, the bankers need

to approach the borrower and act swiftly to counter any problems.

Curative Management

Whereas preventive management aims at mitigating the risk of an account turning NPA,

curative management is also a crucial part of NPA management as it has the capability to

eliminate the factors of stressed assets in the banking system. As the accounts turn NPAs, the

banks have to strategize to take all such measures which will either reduce the stress of the

account or if they are unable to reduce the stress of the account, they are able to recover their

money through various measures.

Some of such measures are described hereunder:

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1. Govt. has seriously been contemplating creation of Bad Bank. It is a concept which

assumes that there are bad accounts in the banking system. The bad accounts could be

creation of genuine business failures or frauds perpetrated by the borrowers. It helps the banks

to cleanse their balance sheets by transferring such accounts to Bad Bank. This measure can

be a double edged sword. If not coupled with stringent punishment for defaulters and

colluding bankers, rating agencies, valuers and others professionals, it could lead to more and

more bad accounts to be transferred to Bad Banks. Hence it is a measure which has to be

treaded with caution. This measure is curative and not preventive in nature.

2. There is a need to focus on framing settlement policies which are practical, easy to

decipher and take cognizance of ground realities and the current environment particularly in

view of pandemic. Intention should be to be able to effect realisation of as much dues as

possible with in a reasonable time frame. The policies need to have an in built process to be

able to take in to accounts factors not considered at the time of framing the policy. The factor

could be legislative changes, major macro economic variables, regulatory changes etc.

3. In small NPA accounts there is a need for better dissemination of the recovery policy

with the borrowers. In the absence of outreach by the banks the small borrowers are ignorant

of concessions offered and accordingly try to avoid the banks. Bankers lack the time and

human resources to handle this class of borrowers being large in number. Collectively this

group contributes to a substantial amount of NPAs which can be recovered.

4. Legal Structure with in banks needs to be restructured/reinvented. Law officers

particularly in public sector banks are archaic in thought process with no understanding of

ground realities. The lawyers of banks are paid petty fee which is a kind of joke. As they say

if you pay peanuts you get monkey’s. It means the lawyer generally hired by public sector

banks are mediocre mind and are unable to be effective in recovery mechanism. Similar to

this the banks need to do away with tendering system in appointment of concurrent, forensic

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and other auditing agencies. L1 system has been detrimental to the monitoring mechanism

with the banking system.

5. NPA’s being so huge in banking industry, both in public as well as private sector it may

not be possible to rely upon legal recourse alone. There is a need to develop secondary market

for NPAs. In india there is no secondary market to deal with NPAs or potential NPAs. The

govt. and other regulators would do well to work on creation of such secondary market so that

financial institutions and /or corporate could participate in take over such assets and enable

optimal use of productive resources of the country.

6. Given the first alert, the banks need to contact the borrower, re-assess the fund requirement

of the borrower, study the causes of stress in the account and discuss with the borrower as to

what can be the possible measures to overcome the same. This may involve restructuring of

the accounts.

Restructuring may involve reduction of margins, infusion of additional funds, both by the

borrowers as well as the lenders, reduction in rate of interest, allowing elongated period to

repay the amount of principal and interest. In certain cases, it might be appropriate to provide

a moratorium period to the borrower for payment of interest or principal or both. However, in

all restructuring, the intention of the party to make certain sacrifice will be a crucial factor.

Restructuring may take the shape of corporate debt restructuring, 5/25 scheme wherein the

bank gives additional funds after a particular period in case the account behaves properly after

restructuring, S4A scheme wherein the banks have the liberty to convert the loan into equity

and control the management of the company for certain period, etc.

7. Another curative measure can take the shape of sell off of certain stressed assets to asset

reconstruction companies, either on a cash down basis or against security receipts. However,

one has to ensure that the bundling of the stressed assets is done carefully so as not to pass on

undue benefit to the asset reconstruction company.

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8. Curative measures can also be in the form of selling off the collaterals in a particular

account to recover the funds of the borrowers.

9. Pursuing the cases under SARFAESI Act, Debt Recovery Tribunal, Lok Adalats are the

other forms of curative management.

10. Reference to NCLT under insolvency and bankruptcy code is being adopted more and

more by the banks as a curative measure, but it is observed that this measure is proving to be

costly to the banks as the banks have been taking an average haircut of 61% in the cases

referred by them. In some of the cases, the haircut is more than 90% as well. But it is proved

that through IPC measures, there have been higher recoveries in the stressed accounts

compared to other measures.

11. Of late, the bankers are not resorting to the One-Time Settlement Scheme (OTS)

because of the fear of 3 C’s, i.e. CVC, C&AG, and CBI. TheOne-TimeSettlement Scheme has

its own merits, and if implemented properly, can be of great help in curing the menace of

NPAs and recovering higher amounts compared to recoveries under IBC.

12. At times, the Governments, Central as well as State have gone in for loan waiver

schemes. Consequential impact thereof has been that even honest borrowers stopped repaying

the loans. So, the bankers need to talk to the Governments that such schemes should not be

imposed upon banks because this vitiates the entire credit environment and the repayment to

the banks stop.

13. Post global recession in 2008, there was a general sickness in the industry that

impacted the NPA levels in the banks. Similarly, this pandemic period 2020 onwards is bound

to have a tremendous impact in the NPA level. The Government and the Reserve Bank of

India have announced certain measures which would go to mitigate the hardships faced by the

borrowers as well as the banks. The bankers have also to play a role in this particular period

by assessing and re-assessing the needs of the various borrowers and taking curative measures

to control the NPA levels.

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14. There is a need to develop a market for finding suitors for non-performing accounts.

Needless to emphasise that the productive resources created with the banking and public

funds need to be protected and alternate promoters need to be found. The Government, RBI

and the bankers in consultation may constitute committees which can look into the possibility

of creating such markets. The committees may even include people from different disciplines

including from judiciary, to provide comfort to the bankers. The 3 C’s, CVC, C&AG and CBI

will not haunt them post any such disposal of the projects.

POST COVID SCENARIO

As has been stated in the earlier chapters, pandemic broke out in world economies including

in India in January 2020. And the second phase of pandemic was seen in India from March to

June 2021. Pandemic virtually brought the world economies to a halt. Barring pharmaceutical,

digital and agricultural sector to an extent, all other sectors saw a major decline in growth. In

India, manufacturing sector registered a negative growth. This necessitated government and

Reserve Bank of India to take necessary measures to provide stimulus to the economy.

Reserve Bank of India released funds to the banks by reducing cash reserve ratio and statutory

liquidity ratio and the government provided guarantee worth 3 lakh crore for loans to the

MSME sector. Government also provided additional funds for MNREGA Scheme, reduced

advance tax rates, rates for deduction of tax at source etc to provide more money in the hands

of the individuals. RBI realising the need for conserving the capital of the banks, issued a

directive to the banks not to pay any dividend for the year ending 31 March 2020. In the first

phase, the banks restructured loans of INR 1 lakh crores, and in the second phase, loans worth

INR 35,000 crores were restructured. Out of the total loans restructured public sector banks

account for INR 97,900 crores and private sector banks account for INR 39,200 crores. Out of

the such restructured loans, 54% pertain to individuals and retail, 43% to corporate sector, 3%

are other loans.

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It is observed that the restructuring schemes by banks lay down that a particular account

should not have been overdue on 29th February 2020. However, MSMEs have been struggling

to maintain compliances with the repayment of loans and SBI alone has reported at 40% of

the fresh slippage in the post covid period is on account of MSME. The MSME trade cycle is

really disturbed. Such units operate as subcontractor or suppliers to larger organised

businesses. Impact on MSMEs is bound to have an impact on the large businesses supply

chain also. The passing of Factoring Regulation (Amendment) Bill 2020 can be seen as a

relief measure for MSMEs but the reach and increase in volume of credit to MSME is an

important factor considering their high dependency for finances, both from the commercial

banks as well as the unorganised sectors. At present, almost 84% of the MSME demand for

credit is met by informal sources. It is also observed that most of the big corporates have tried

to avoid restructuring to keep their track record clean. 95% of the firms opting for

restructuring are sub investment category firms. This puts the banking sector, both private as

well as public sector at risk, even post restructuring.

It will be in fitness of things that government infuses funds for infrastructure projects and

undertake such measures which can create employment so as to ensure the disposable income

in the hands of individuals. Creation of demand is the need of hour to push up the growth

level in the economy and thereby enhancing the demand for credit from the banking sector. In

view of researcher, this is not the time to bother too much about inflation. Inflation is not

always bad. This is the time to revive the economy by infusing funds even by resorting to

deficit financing and keep the economy going. This will be in the overall interest of the

nation.

FINDINGS

Needless to say, the NPAs have significant adverse effect on the performance, profitability,

goodwill and fund recycling ability of the banks. To mitigate the risk of NPA, the bankers
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need to follow the golden rule of ‘tread with caution’ at the time of accepting the proposal and

giving importance to 4 C’s, i.e., Character, Collateral, Capacity and Condition. As discussed

earlier, the term loans turn NPA when the payment of interest or principal or both becomes

overdue for a period of 90 days or more. Working capital facilities become NPAs when the

account remains out of order for a period of 90 days or more. Cash credit accounts also

become NPAs when the total credits in the account are less than the total debits of interest in

the said account. Bills discounted become NPAs when these remain overdue for a period of

90 days or more. Similarly, there are norms for the other accounts to be classified as NPAs.

Wherever an account becomes stressed, the bankers do make efforts to restructure the same

with a view to rehabilitate the account. The restructuring fails whenever the borrower’s

intentions are bad or the project is technically or financially non-viable. To make restructuring

effective, it is imperative that the borrower should also be made to bear a part of the sacrifice

so that he also appreciates the sacrifice made by the bankers. Also, this will put him on an

alert that he might also loose an additional money if the business does not get rehabilitated.

The bankers can choose any mode of restructuring including exercising the option to convert

their lending into equity and taking over the management but such method is not found to be

practical because then the bankers run all kind of operational and statutory risks.

In case the account either before restructuring or after restructuring does not get rehabilitated,

the bankers generallyexercise any of the following options:

1) One time settlement

2) Resorting to auction of the collaterals

3) Selling the NPAs to asset reconstruction companies

4) SARFAESI Act, 2002

5) Resorting to Debt Recovery Tribunals

6) Lok Adalats
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7) Referring the case to NCLTs under IBC Act

Risk of NPAs can be mitigated to a large extent by monitoring of the accounts as discussed in

this chapter earlier.

The problem of NPAs can be tackled either at decentralised level by the individual banks, or

at the centralised level by the banks and other agencies together. The other agencies include

other member banks in consortium, RBI, Lok Adalats, Debt recovery Tribunals, Courts,

NCLTs etc.

It is observed that collaterals are of great significance and absence of the same can put the

banks in a defensive mode and the borrower in the aggressive mode. Also, in case of

unavailability of the securities, the banks may have to suffer huge losses compared to the

settlements in the cases of the loans where quality collaterals are available.

NPAs are categorised into 3 categories: substandard assets, doubtful assets and loss assets.

Provisions ranging from 15% on a substandard asset to 100% in case of doubtful assets

depending upon the period for which it remained doubtful are required to be made. Similarly,

in the case of loss assets, provision of 100% is required to be made. This also emphasises the

importance of having security in the account. It is generally felt that agricultural loans run a

greater risk of turning NPAs due to the fact that Indian agriculture for water requirements is

highly dependent upon good monsoon. Poor monsoon or heavy monsoon can play havoc with

the agriculture sector loans. There is no denying the fact that natural disasters can severely

impact the recovery of such loans. However, it also needs to be appreciated that even during

the pandemic, agricultural sector is only the one which has shown positive growth and thus

needs to be supported. This is also undeniable that there is an inadequate provision in respect

of the agricultural loans in the banking sector. However, in the researcher’s view, the day is

not far off that the government may have to bite the bullet for once and after that, the

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 agricultural loans will also be subjected to stringent scrutiny. It needs to be appreciated that

post nationalisation of banks in 1969, public sector banks reached remotest of the remote

areas in the country and helped the agricultural sector, particularly with a view to free the

farmers from the clutches of money lenders. The objective may not have been achieved fully,

but substantial work has been done in this direction by public sector banks and other micro

finance institutions. Private sector banks have not been able to contribute as significantly in

this particular area.

One of the findings of the research is that both internal and external factors have played a

major role in the growth of NPAs. In the external factors, the corruption, political

interference, changes in government policies etc have majorly contributed to the NPA level.

Researcher finds that the recoveries under the IBC have been far more compared to the other

modes of [Link] e.g, Lok Adalats, Debt Recovery Tribunals etc.

Year 2018-19 2019-20

Col. (4)
No. of No. of Col. (8) as
Amount Amount as per Amount Amount
Recovery Channel cases cases per cent of
involved recovered* cent of involved recovered*
referred Col. (3) referred Col. (7)

1 2 3 4 5 6 7 8 9
Lok Adalats 40,87,555 53,484 2,750 5.1% 59,86,790 67,801 4,211 6.2%
DRTs 51,679 2,68,413 10,552 3.9% 40,818 2,45,570 10,018 4.1%
SARFAESI Act 2,35,437 2,58,642 38,905 15.0% 1,05,523 1,96,582 52,563 26.7%
IBC 1,152@ 1,45,457 66,440 45.7% 1,953@ 2,32,478 1,05,773 45.5%
Total 43,75,823 7,25,996 1,18,647 16.3% 61,35,084 7,42,431 1,72,565 23.2%
Notes:

1. Data are provisional.

2. DRTs: Debt Recovery Tribunals

3. *: Refers to the amount recovered during the given year, which could be with reference to

the cases referred during the given year as well as during the earlier years. In the case of IBC,

179 | P a g e
the realisation does not include amount realisable for operational creditors, from guarantors of

corporate debtors and disposal of avoidance transactions.

4. @: Cases admitted by National Company Law Tribunals (NCLTs) under IBC. However,

figures appearing for amount involved and amount recovered are for cases whose resolution

plan was approved during the given financial year i.e. 81 cases for 2018-19 and 135 cases in

2019-20. Also, the amount recovered refers to realisables by all financial creditors, not just

SCBs.

5. The resolution plan of Essar Steel India Ltd. was approved in 2018-19. However, as

apportionment among creditors was settled in 2019-20, the recovery is reflected in the latter

year data.

Source: Off-site returns, RBI and Insolvency and Bankruptcy Board of India (IBBI).

Recently the Standing Committee on Finance headed by Mr. Jayant Sinha, has underlined the

need to have a relook at the IBC process. According to the committee, the kind of haircuts

which in cases are as high as 95% are unsustainable. As a consequence of this, the Ministry of

Corporate Affairs, Reserve Bank of India and Indian Banker Association are in dialogue to

lay down a code of conduct for the Committee of Creditors.

In view of unsustainable haircuts being taken by banks under IBC, there is a need to lay down

code of conduct for committee of creditors. Various agencies need to come together to

achieve this objective.

As already discussed, and summarisedunder objective 5, the researcher finds that the

performance of the private sector banks is better, both in terms of maintaining low rate of

NPAs as well as the profitability of the banks. HDFC bank continues to be the dominant one

in terms of quality of assets and market capitalisation. Even in terms of dividend pay outs,

earning per share, capital adequacy ratio, this has the best ratios. It is also in a dominating

180 | P a g e
position with regard to the profitability and return on equity. The public sector banks barring

State Bank of India have not fared as well as the private sector banks. SBI fares better

amongst the public sector banks. But going by the various ratios of NPA’s, profitability, EPS,

dividend pay-out, its performance is inferior to HDFC and ICICI banks. Axis bank amongst

private sector banks has fared worse. Central Bank of India has been a sort of disaster, both in

terms of the NPAs and profitability. Even the capital adequacy of the bank in certain years

dipped very badly. It has not paid any dividend after 2015. Its EPS has been negative in most

of the years. Bank of Baroda fares much better than Central Bank on various parameters.

5.3 SUGGESTIONS & RECOMMENDATIONS

From all the discussions in the previous chapters and this chapter, it is concluded that there is

an immediate need to control the rapid growth of NPAs. It is also clear that elimination of

NPA is the banking industry is not possible. NPAs have serious adverse impact on the

banking industry and the economic growth of the country. So, all out efforts have to be made

to ensure that the growth of NPAs don’t go beyond manageable proportions. This can be

achieved by the banks in two ways, one preventive and the other curative.

1) The government may contemplate establishing developmental financial institutions to

meet the credit needs of the infrastructure industry.

2) It is required to improve governance of public sector banks and distance them from the

government. Public sector bank boards are still not adequately professionalized, and the

government still decides board appointments, with the inevitable politicization. Eventually

strong boards should be entrusted with all decisions but held responsible for them.

Besides, it was observed that the risk management processes still needed substantial

improvement in PSBs. Compliance being adequate, and cyber risk needing greater attention

were also part of his observations.

181 | P a g e
3) Banks will need to improve their preventive management systems internally through

quality measures and more focus on technology. In curative measures, Reserve Bank of India,

Government and the Tribunals will have to formulate a strategy to ensure that the redressal to

bankers is done in time without loss of value of money. Despite setting up of NCLTs, in

certain cases like JP Associates, Unitech Ltd etc., it is observed that there are inordinate

delays in the settlement. It is well said that justice delayed is justice denied. Both the parties,

the lenders and the borrowers need to be provided clarity as fast as possible with regard to

their status. Quick disposal of the case would lead to utilisation of the financial and physical

resources of the units already set up to be utilised by certain other promoters for the

productive purposes. This will enhance the GDP and will lead to greater employment in the

country, thereby leading to more incomes in the hands of individuals. It will create more

demand in the market and demand for better standard of living will lead to need for more

products which in turn will affect the demand for credit as well.

4) In preventive management, the banks may need to improve their appraisal, disbursal,

monitoring, auditing and inspection functions. Banks may have to carry out better scrutiny of

the documents filed with them. One of the suggestions to banks will be to accept reports of

Chartered Accountants in respect of the Prospective Financial Statements in the formats laid

down by the Institute of Chartered Accountants of India (ICAI). It is also suggested to

improve the quality of the stock audits and concurrent audits. It is suggested that as in the case

of concurrent audit of branches, a similar exercise for the concurrent audit of the major

borrowers, particularly the accounts under restructuring be undertaken on extensive basis. It is

suggested that to have a better check on inflated figures in the financial statements, the banks

may scrutinise or get scrutinised through the professionals, the GST returns and income tax

returns filed by the borrowers. Also, it is suggested that the bankers may be empowered to

obtain independent information of the income tax records of the borrowers and their

promoters from the department directly to detect any camouflaging of the data. The banks
182 | P a g e
may also look at the related party transactions of the borrowers with their sister concerns and

may insist for repayment of any loans or advances if not considered to be for business

purposes. The banks also need to ensure exchange of greater information amongst themselves.

Reporting of any adverse remarks by the statutory auditors of the borrowers be taken

seriously by the banks. The bankers may engage an agency or on their own, may cross check

the financial statements of the corporates filed with the Registrar of the Companies and the

statements as filed with the banks. The banks may also dispense with the tendering system for

allotment of concurrent audits and forensic audits. Selection on L1 basis in such cases can

hamper the quality of the professional services.

5) The banks need to train their staff, both technically and with regard to human

behaviour. On technical side, the staff should be trained to carry out better SWOT analyses of

the projects, and on the human behaviour side, they should be told, particularly in the public

sector as to how to win and to retain a customer. Private sector banks are better off in both

these aspects. There is a need on the part of banks to track the past antecedents of the

promoters and their relatives. This can be done through CIBIL. But more importantly, the

bankers may try to search through the social media any of the adverse reports against such

promoters.

6) It is required to strengthen the recovery process further. It was stressed that, both the

out of court restructuring process and the bankruptcy process need to be strengthened and

made speedy. It is required to protect the ability of bankers to make commercial decisions

without subjecting them to inquiry. Steady modifications to the bankruptcy code are required

wherever necessary, so that it is effective, transparent, and not gamed by unscrupulous

promoters. It is observed that Debt Recovery Tribunals, Lok Adalats and SARFAESI Act

have not proved to be an effective mechanism for the recovery of NPAs. Contrary to this, the

recoveries under IBC have been far more. However, the chart brings out that the average

haircut taken by the bankers till date is 61%. In some the of cases, the haircut is more than
183 | P a g e
 90%. It may be observed from the data that the liquidation value in the cases under IBC is

very low. If such was the case, why someone should be willing to takeover such units at 150%

- 200% of the liquidation values. It is suggested that the Government agencies should look

into the cases where liquidation values are abnormally low. It appears either the loans were

given against the collaterals which were exorbitantly overvalued or are being

substantiallyundervalued now at the time of IBC settlements.

Realisa
CI
Date of Total ble by Realisable
Defun Date of RP
Approval Admitte Liquida Realisa FCs as by FCs as
S.n et commence init
Name Of CD of d tion ble by % of % of
o (Yes/ ment of iat
Resolution Claims Value FCs Admitte Liquidation
No) CIRP ed
Plan of FCs d Values
by
Claims
Part A: Prior Period(Till December 31, 2020)
kharika Steels Private 20-09-
NA
1 Limited 2019 21-09-2020 FC 411.16 6.52 8.22 2 126.07
V3 Engineers Private 02-03-
Yes
2 Limited 2020 21-09-2020 OC 0.74 0.14 0 0.34 1.79
Educomplnfrastructure
and School Mangement NA 25-04-
3 limited 2018 14-12-2020 CD 904.04 462.39 499.88 55.29 108.11
Part B: January - March, 2021
BigmoonBuildcon 03-09-
No
1 Private Limited 2019 04-01-2021 FC 34.43 14.66 18.5 53.73 126.19
Garden Silk Mills 24-06-
No
2 Limited 2020 01-01-2021 FC 2090.46 694.18 717.5 34.32 103.36
Parabolic Drugs Limited 23-08-
No
3 2018 12-01-2021 OC 1515.58 110 103.68 6.84 94.25
Vardhman Chemtech 25-09-
No
4 Limited 2018 12-01-2021 FC 411.92 14.02 27.54 6.69 196.43
ShetkariSakharKarkhana 14-01-
Yes
5 (Chandapuri) Limited 2019 22-01-2021 OC 69.30 24.85 22.49 32.45 90.5
Nijinoy Trading Private 25-04-
Yes
6 Limited 2019 18-01-2021 OC 1.24 0.15 0.1 8.06 66.67
Prius Commercial 09-08-
No
7 Projects Private Limited 2019 04-01-2021 FC 844.79 429.07 443.13 52.45 103.28
NTL Electronics India 27-08-
No
8 Limited 2019 07-01-2021 OC 139.44 18.74 17.84 12.79 95.2
Capital Auto Rubber 06-09-
Yes
9 Product Private Limited 2019 08-02-2021 OC 9.70 4.55 5.2 53.59 114.36
Prosperity Steels Limited 04-10-
Yes
10 2019 18-02-2021 OC 3.04 1.62 0.17 5.59 10.49
Sungracia Tiles Private Yes 04-12-
11 Limited 2019 18-02-2021 OC 13.15 11.04 11.21 85.25 101.54
Uniworld Sugars Private 29-05-
Yes
12 Limited 2018 17-03-2021 OC 138.03 52.69 45.77 33.16 86.87
Ashtavinayak auto Yes 06-11-
13 Private Limited 2018 05-03-2021 OC 7.18 0.3 0.09 1.2 28.27
AVK Automall Private 06-11-
Yes
14 Limited 2018 05-03-2021 OC 7.20 0.32 0.09 1.21 27.46
15 AVK Automart Private Yes 06-11- 05-03-2021 OC 50.25 0.34 0.52 1.03 151.29

184 | P a g e
 Limited 2018
Aristo Developers Private 20-11-
No
16 Limited 2018 23-03-2021 OC 2403.85 754.84 1820.24 75.72 241.14
Shree Vindhya Papers 07-06-
Yes
17 mills Limited 2019 02-02-2021 FC 1816.17 4.11 10.60 0.58 257.91
SEL Manufacturing 11-04-
No
18 Company Limited 2018 10-02-2021 FC 7242.28 997.88 1089.5 15.04 109.18
Celestial Estate Private 11-03-
NA
19 Limited 2019 15-03-2021 FC - - - - -
09-07-
NS Papers Limited* NA
20 2019 23-02-2021 FC - - - - -
Fortuna Urbanscape 09-08-
Yes
21 Private Limited 2019 29-01-2021 FC 167.21 18.07 37.87 22.65 209.62
Panel Boards and 20-08-
Yes
22 Laminates Limited 2019 01-03-2021 OC 18.28 7.02 5.13 28.06 73.08
Perfect Boring Private 30-09-
23 NA 2019 16-03-2021 OC - - - - -
Limited*
PVS Memorial Hospital 16-10-
No
24 Private Limited 2019 22-02-2021 OC 146.11 122.91 114.56 78.41 93.21
Skipper Homes Private 21-10-
25 Limited No 2019 11-02-2021 FC 10.52 1.41 4.63 44.01 328.37
RD Alloys Private 25-10-
Yes
26 Limited 2019 24-03-2021 FC 11.82 14.36 4.87 41.2 33.91
Churakulam Tea Estates 28-11-
No
27 Private Limited 2019 08-01-2021 FC 17.32 41.74 17.32 100 41.49
Hindustan News Print 28-11-
No
28 Ltd 2019 29-01-2021 FC 209.09 162.7 72.30 34.58 44.44
Bristo Foods Private 20-12-
No
29 Limited 2019 29-01-2021 FC 11.38 2.43 1.87 16.4 76.89
17389.7
Total(January - March, 2021) 3 3504 4592.71 26.41 131.07
516046. 112643. 202617.
Total(Till March, 2021) 95 66 81 39.26 179.88
Defunct: Not Going Concern/Erstwhile BIFR
*Data Awaited in 3 CIRPs

7) It is suggested that there is a need to provide budgetary support to banks, particularly in

case of directed landing in case such loans turn NPAs.

8) There is a need to reduce the political interference in sanction, restructuring and

settlement of loans. This is one of the biggest challenges. It is suggested that there is a need to

take a stern action against the wilful defaulters. In case it is detected that the borrower has the

capacity to repay but does not pay or has resorted to fraudulent preferential transfers, such

transactions need to be nullified. Exemplary criminal action needs to be taken against some of

such defaulters.

9) The banks need to differentiate between the genuine losses suffered by a borrower and

the frauds committed by him. In case of genuine losses, timely restructuring needs to be

185 | P a g e
undertaken in case the projects are found to be viable. Any delay in the restructuring in

genuine cases cause the situation to worsen and increase the loss of the bank as well. Bankers

need to undertake more visits to the borrowers’ premises. This will help the bankers to

ascertain the utilisation of funds by the borrower andwill also keep the borrower under a

moral check. It is natural that during the visits by the bankers to the premises of the

borrowers, they would interact with the staff members and may be able to get the alerts which

otherwise would not have been possible. Based upon such alerts, it may be possible for them

to take timely action, particularly if they find build up of debtors, creditors, inventories etc. At

times, they may find that the unit may not be functioning and this will immediately send

warning signals to the bankers to act for the recovery.

10) Going the experience of Nerav Modi scam there is a need for banks to ensure compliance

with internal guidelines with regard to rotation of seats of staff on regular basis.

11) Frequent LC devolvement, overdrawn accounts and stress in repayments may be resolved

by meeting the borrowers, finding out the causes and taking timely action.

12) It is suggested that in case the preventive measures fail, the bankers should immediately

resort to curative measures which may involve legal action. Delays in legal action may enable

a borrower to dispose off some of the assets and cause more losses to the bankers.

13) Asset reconstruction companies (ARCs) can be a major tool for managing the NPAs and

cleansing the balance sheets of the bankers, but it needs to be ensured that the ARCs are sold

the NPAs in buckets which may have a mix of loss assets, substandard assets, doubtful assets,

with or without collaterals. The banks should devise way of valuing such assets in a fair

manner so as to be attracted for ARC to purchase and for banks to sell. It should be without

any bias and prejudice. Asset reconstruction companies have been buying these assets either

on cash down basis or against security receipts. The banks need to ensure that security

receipts as and when are maturing, the ARCs shall be in a position to honour the same.

186 | P a g e
14) The incentive structure for bankers should be worked out so that they evaluate, design,

and monitor projects carefully, and get significant reward if these works out. IT systems

within banks should be able to pull up overall performance records of loans recommended by

individual bankers easily, and this should be an input into their promotion and

[Link] in the technological systems of the banks can play a significant role in

managing NPAs. New generation private sector banks have got better technology compared to

the public sector banks. However, of late the public sector banks have also invested heavily in

the technology. ReserveBank of India has already mandated that all the NPA identification by

the banks have to be without any manual intervention. Such identification has to be through

system only. The last date for the same was 30th June 2021. In case this is implemented

successfully, menace of hidden NPAs and recognition of income on such accounts would

cease. This will help in getting a better picture of NPAs. Better technology will allow the

banks to provide more qualitative services to the customers through speedier online transfers,

banking anywhere etc. Better technology may also help the banks in having real time

information with regard to the clients. Also, any changes in rate of interest on deposits or on

advances could be better captured, thereby benefitting all the parties. This will provide lot of

data to the banks on borrowers for the purpose of data mining and the analyses thereof.

However, one needs to be cautious that there is no substitute to human brain and ultimate

judgement and decision making will have to be done by the management of the banks.

15) There is a need for banks to create a buffer provision for meeting the contingencies like

pandemic. Though the banks have been making a provision against standard assets, but that

provision can only meet the requirements of accounts turning NPAs in the normal course. To

meet contingencies like pandemic, a separate buffer provision needs to be created which

cannot be utilised at any time for purposes other than specified.

187 | P a g e
This may be noted that we don’t subscribe to the idea of privatization of PSBs as an

unqualified panacea to this ever-growing malady for the simple reason private banks’

exposure to NPAs are not surprisingly different from their counter parts in public sector both

in quality and quantity. However, failure in getting high profile defaulters to book has been a

major source of disappointment and that’s possibly a credible reason for undeterred spread of

this ailment engulfing the lending communities across the state-owned banks.

Scope of future research

The focus of the research paper has been on the trends in public and private sector banks.

Concept in respect of both of these sectors has already been defined. The research paper has

tried to compare the NPA positions in six banks (3 banks taken from each of the sector). It

was not possible to conduct the research on all the 12 public sector banks and all the 22

private sector banks. Therefore, in view of the limited availability of time and resources, the

research has been conducted with regard to six of the banks, namely, State Bank of India,

Central Bank of India, Bank of Baroda, HDFC Banks, ICICI Bank and Axis Bank. The said

banks have been chosen primarily based upon their performance and the dominant position in

the banking sector. Also, while choosing the banks it was considered that it would be fair to

choose banks of different sizes with different features and with different trends.

In view of the pandemic, it was not possible to go to all the bank branches and collect the data

for the purposes of research. The research has been conducted primarily based upon the

secondary published data available in the public domain. However, the data has been

validated through various other secondary sources as well.

It is suggested that in future, the research may be conducted in the following areas to have a

better comparison of NPA management in banks under two sectors:

188 | P a g e
1) Small and finance banks may be included for the purpose of research under the private

sector banks and the performance of regional rural banks be included under the public sector

banks. It will help in a more wholesome study on comparison of NPA management in two

sectors.

2) It may be appropriate in future to conduct a research on the performance of foreign banks

vis-a-vis the performance of Indian public sector and private sector banks to study another

dimension of how the performance of foreign banks compares with the Indian banks.

3) Going by the dubious role of rating agencies in rating some of the borrowers at the time

of credit appraisal system and the sanctioning of the loans, it may be appropriate to conduct a

researchwith regard to how many cases the same rating agencies downgraded the ratings of

the borrowers post disbursal of loans. It will help in understanding the fraudulent practices

adopted by the borrowers in collusion with the rating agencies.

4) It may also be possible to study the performance of Asset Reconstruction Companies in

reduction of NPAs from the balance sheets of private and public sector banks. It may be of

particular interest to study the write offs consequent to such takeover of stressed assets by the

asset reconstruction companies. The researcher may do well to study some of the cases of sale

of stressed assets which were later on found to be extremely viable units. Time taken and

capital infusion required for improvement may be studied. This will help to understand

whether the banks suffered the write offs genuinely or there were certain other malpractices

adopted in selling of some of the possible viable projects to the ARCs at a lower cost.

5) Insolvency bankruptcy code was introduced with lot of fanfare, stressing the need for this

resolution mechanism in the country. The cause and need were noble, however the average

haircut of 61% suffered by various banks clearly proves that it may not have served the

purpose that it was meant for. A study needs to be conducted as to how the liquidation values

of the various borrowers under reference to NCLT have been extremely low compared to the

admitted financial claims of the lenders. It will be of interest to study the soundness of these
189 | P a g e
liquidation values. The study may aim at looking at the role of the bankers both in public and

private sector, valuers, resolution professionals and another agency.

6) In view of large frauds committed, both in private as well as public sector banks, it would

be appropriate to conduct a study on the nature and modus operandi of these frauds with

suggested remedial measures in respect thereof.

7) It would be indeed appropriate to conduct a study as to in how many cases the accounts

turned NPAs both in public sector and private sector banks, wherein the funds had been

diverted to the related parties within or outside India.

8) A study needs to be instituted for the purposes of understanding the role of concurrent

auditors in non-identification of NPAs at an early stage. A similar study needs to be instituted

as to in how many cases the stock auditors and the forensic auditors did not report frauds

wherein the banks had suffered huge losses due to the accounts turning NPAs both with the

public sector as well as the private sector banks.

Limitations of the study

It is well understood that any research can be as qualitative as the information is available in

respect thereof. Findings of the research also impacted by the availability of primary data and

the authenticity of the secondary data. As stated earlier, for the purposes of the present

research, certain interviews of the bankers and customers were conducted and the secondary

data in the public domain has been relied upon. Despite this, the research may suffer from the

following limitations:

1) The bankers are generally busy people, and it is difficult to get time out of their busy

schedule. To the extent possible, they were interviewed. However, in certain cases the bankers

were not very forthcoming to divulge the information with regard to their customers and the

bank.

190 | P a g e
2) Data with regard to six banks has been picked up from the secondary sources and it was

not possible to conduct physicalinterviews in respect of all public and private sector banks for

the reasons of constraint of time and cost. Only the bankers in the accessible areas were

approached and information was collected from them.

3) Customers of the bank genuinely felt shy of commenting adversely on the customer

service of the banks. However, one of the points which was generally raised by the customers

of the bank was with regard to non-adjustment of the interest rates wherever they had opted

for the floating rate of interests in respect of housing and vehicle term loans. This was

particularly raised by customers of private sector banks. It was also brought out that private

sector banks charge very heavily in the foreclosure of a particular account. In this respect,

public sector banks found favour with the customers. However, in general, the customers

were not willing to divulge much of personal experiences with a particular branch or a

particular official. When questioned about the genuinity of the information provided by the

customers to the bankers, most of them refused to comment or avoided the question.

4) The study has been conducted on 3 public sector and 3 private sector banks without

considering the foreign banks and the small and finance banks. So, the comparison is more in

relation to the six bigger Indian banks in the two sectors.

5) Provision in respect of NPA’s undergo a change due to various factors. The change could

be on account of addition to NPA’s, up gradation of accounts, ageing of NPA’s, recoveries

effected during the year, loss of securities etc. Figures in the public domain do not reflect the

effect of ageing of NPAs, loss of securities etc. Accordingly the analysis suffer due to such

limitation.

6) There could be changes in Net Interest Margin over the years due to changes in rates of

interest on advances, deposits and other borrowings from year to year. Information with

regards to effect of same is not available in the public domain. Hence the limitation.

191 | P a g e
7) Increase in the NPAs could be on account of certain non financial parameters as well e.g

non renewal of accounts for a period of 180 days or more from the due date of renewal and

allowing the drawing power based upon stock statements which are more than 180days old.

The moment such deficiency is rectified the account is upgraded. Information with regard to

such classification is not available. Hence the limitation.

8) Exact reasons of accounts becoming NPA’s are not available. The same could be due to

frauds, diversion of funds, accommodation bills being discounted and the same getting

dishonoured on due date, credit card frauds, elongation of operating cycle of borrowers for no

justifiable reasons, misutilisation of preshipment credit etc. Accordingly analysis of specific

reasons for accounts turning NPAs has been hampered.

9) For conducting any study, it is desirable that information with regard to all the variables

should be available. It is seen from the financial statements particularly of the public sector

banks, that the increase in capital is reflected to meet capital adequacy in different years.

However, whether the funds have been received in cash or the government has allowed them

to raise the capital with a corresponding debit in respect of the bonds of the government, it is

not known. This information is important to understand firstly, whether the funds received by

the banks are available for the recycling or if these are in the form of bonds, what is the rate of

return which the government provides on such bonds. Generally, the rate of return which is

provided on these bonds is lower than the return that the banks can earn on advances.

10) The research may suffer from certain sampling errors despite taking all necessary

precautions to prevent the same. These kind of sampling errors occur when the researcher

uses the probability sampling method in order to select a sample for the completion of a

research study. The result limitations that are related to probability sampling are generally

known as selection bias or sample bias.

192 | P a g e
11) Whereas the researcher might have conducted the interviews based upon the availability

of the branch managers and the customers, the sample so chosen could have replied based

upon their bias.

Further, it is difficult to verify the authenticity of the information provided by the people

interviewed. It could be based upon their experiences, preferences or bias. So, the information

collected and analysed could be incomplete to that extent.

12) Figures collected in respect of resolutions under IBC do not reflect the financial claims

made by individual bankers either under public or private sector banks. These figures also do

not reveal the recoveries made by each banker under this scheme. So, the figures are for the

total banking industry and accordingly it has not been possible to bifurcate the efficacy of IBC

scheme to tackle the problem of NPA in the banks under the two sectors. The analysis in

respect of IBC to manage the NPAs is on an overall basis.

13) Having completed the analyses of the research findings, it is not peculiar for a researcher

to perceive that there could have been other ways to analyse the data. But given the time

frame and the fund resources, it is not possible for the researcher to go back and collect more

data or to analyse it differently. As effort has been made to reach the conclusions objectively

but the possibilities of better results by different kind of analysis cannot be ruled out.

14) Any research suffers from some kind of cultural bias. The customers or the bankers who

are interviewed belonged to different places, different communities and accordingly, bias

against other community in providing the information cannot be ruled out. In order to remedy

the situation, the researcher has tried to be as unbiased as possible.

15) Most of the research is done based upon the secondary data which is more historical in

nature and may not take into consideration the impact of inflation. So, the real value of money

lost may not have been the subject matter of the research.

193 | P a g e
16) In absence of information of changes in the interest rates on deposits, we have nearly

been able to compare the expense based on the percentage of deposits, consequently its

impact on NIM could differ in different banks.

194 | P a g e
Bibliography

Alagarsamy, T. and Ganapathy, S., 2017. Performance of non-performing assets (NPA) in

State Bank of India. International Journal of Advanced Research in Management and Social

Sciences, 6(8), pp.79-84.

Banerjee, R., Verma, D. and Jaiswal, B., 2018. Non-performing assets: a comparative study of

the Indian commercial banks. International Journal of Social Relevance & Concern, 6(2),

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