66

CHAPTERCHAPTERCHAPTERCHAPTER----IIIIIIIIIIII

GROWTH AND DEVELOPMENT OF

PUBLIC SECTOR BANKS IN INDIA:

WITH SPECIAL REFERENCE TO NPAs

CHAPTER-III

GROWTH AND DEVELOPMENT OF PUBLIC SECTOR BANKS IN

67

INDIA: WITH SPECIAL REFERENCE TO NPAs

Banking in India originated in the last decade of the 18th century.

Commercial banks occupy a major part of the banking in India. They are the

oldest form of banking institution having large volume of operations over a

vast area. They are having very good net-work of branches even in rural and

semi-urban areas. Now they are not only engaged in their traditional business

of the accepting and lending money but have diversified their activities into

new fields of operations like merchant banking, leasing, housing finance,

mutual funds and venture capital. They have introduced a number of

innovative schemes for mobilizing deposits. In addition to the above they are

providing valuable services to their customers, issuing drafts, travellers

cheques, gift cheques, accepting valuables for safe custody and modern

banking facilities.

Since the process of liberalization and reform of the financial sector

were set in motion in 1991, banking has undergone significant changes. The

underlying objective has been to make the system more competitive, efficient

and profitable. A strong banking sector is important for flourishing economy.

The failure of the banking sector may have an adverse impact on other

sectors. Non-performing asset (NPA) is one of the major concerns for banks

in India. NPAs reflect the performance of banks. A high level of NPAs

suggests high probability of a large number of credit defaults that affect the

profitability and net-worth of banks and also erodes the value of the asset.

The NPA growth involves the necessity of provisions, which reduces the

overall profits and shareholders' value.

68

The severity of the incidence of non-performing assets (NPA

henceforth) in Indian public sector banks (PSBs henceforth), noted in the

early 1990s, raised a severe hue and cry in various quarters. In fact, the

problem started much earlier, which became evident from continued

recapitalisation of many PSBs since 1985-86. Whatever be the root cause,

malfunctioning of the PSBs increased by the end of the 1980s. This led to the

setting up of the Narasimham Committee (1991), which, in fact, identified NPA

as one of the possible causes/effects of the malfunctioning of the PSBs. In

order to quantify the NPA problem, Narasimham Committee (1991) made it

mandatory on the part of the banks to publish annually the magnitude of

NPAs. NPAs are those categories of assets (advances, bills discounted,

overdraft, cash credits etc) for which any amount remains due for a period of

180 days. Following the recommendations, banks started publishing in their

annual reports NPA data, which were astonishingly high. RBI (1999) report on

NPA stated that reduction in NPA should be treated as a ‘national priority’. In

the Task Force report on non-performing assets in the Indian financial system,

it is argued that three NPA ridden banks (UCO bank, United Bank of India and

Indian Bank) are open sores threatening the health of the entire financial

system. The report went to the extent of stating that these banks were not

viable candidates either for privatization or for merger, and thus they should

be closed down. The Verma Committee (1999), on the other hand, felt that

these three banks could be revived if they submit themselves to the discipline

of a rigorous restructuring, underpinned with adequate infusion of funds and

simultaneous relief from the load of NPA and excess manpower. The

difference in the respective recommendations has provoked protests of

69

varying orders of frenzy, from the unionised employees. The unions have

argued that the banks have been the victims of the wilful default by large

corporate borrowers.1

One of the major segments of the economy that has received renewed

focus in recent times has been the financial sector. Within the broad ambit of

the financial sector, the banking sector has been the cynosure of academic

and policy makers alike. Among the various reasons attributable to be re-

surgence of interest in banking, the world-wide trend towards deregulation of

financial sector, ascendancy of free market philosophy and the growing

number, breadth and severity of bouts of financial distress that have plagued

several economics since the eighties have been the dominant ones. Such

liberalization has raised a gamut of questions relating to the linkage between

deregulation and the various categories of risks confronting the banking

sector. With concerns about financial stability emerging and presenting of

policy challenges to central banks world-wide, it is being increasingly realized

that promoting healthy financial institutions, especially banks, is a crucial

prerequisite towards this end. In consonance with this trend, the traditional

face of banking has also been undergoing a change from one of mere

intermediator to one of provider of quick, cost effective, efficient and

consumer centric services.2

One of the key constituents of the financial sector in India is the

banking system, which has been playing a significant role in the national

economic development by providing intermediation services, enabling capital

formation process and enhancing resources for achieving national objectives

and priorities. Since the early 1990s, the structure of the banking sector has

70

significantly changed due to deregulation and liberalization, accompanied by

divestment of public banks and entry of new private and foreign banks. These

developments are expected to have important implications for operating per-

formance and profitability in the Indian public sector banks and private sector

of reform measures based on the recommendation of the Narasimhan

committee to make the banking sector economically viable and competitively

strong.3

Banks are the institutions that not only possess the potential to be a

great catalyst of growth but also have the capability of causing catastrophe to

an economy. When they efficiently mobilize and allocate funds, this lowers the

cost of capital to firms, boosts capital formation, and stimulates productivity

growth. Their role in the intermediation process is very significant because of

overwhelming control over the entire financial assets of the economy and

more because of the under development of capital market in most of the

developing economies like India and many others. They are the primary

financial intermediaries that arise during savings-investment process and

come in between the ultimate borrowers and lenders. They accept deposits

on promise to pay a rate of interest, which is then converted to different

categories of assets out of which loan is the most prominent one.4

Commercial Banks in India

On the organized sector of the money market, commercial banks and

cooperative banks have been in existence for the past several decades. A

commercial bank is run on commercial line, that is, to earn profits unlike a

cooperative bank which is run for the benefit of a group of members of the

cooperative body. The commercial banks are spread across the length and

71

breadth of the country, and cater to the short-term needs. These days the

commercial banks also look after other needs of their customers including

long-term credit requirements.

The banking sector has been undergoing drastic metamorphosis. The

term progress witnessed in the realm of banking services has been

engineered by the trends in globalization and privatization. Commercial banks

operating in India may be categorized into public sector, private sector, and

Indian or foreign banks depending upon the ownership, management and

control. They may also be defined as scheduled or nonscheduled, licensed or

unlicensed.

A. Scheduled Banks

a. Public sector banks

b. Private sector banks

c. Foreign Banks

d. Regional Rural Banks

B. Non-scheduled Banks

i) Cooperative Banks

� Primary Credit Societies at the base,

� Central Co-operative Banks at the district level in the middle, and

� Provincial or State Co-operative Banks (also called as apex banks) at

the top.

Public Sector Banks

Public sector banks are those in which the majority stake is held by the

Government of India (GoI). Public sector banks together make up the largest

72

category in the Indian banking system. There are currently 27 public sector

banks in India. They include the SBI and its 6 associate banks (such as State

Bank of Indore, State Bank of Bikaner and Jaipur etc), 19 nationalised banks

(such as Allahabad Bank, Canara Bank etc) and IDBI Bank Ltd.

Public sector banks have taken the lead role in branch expansion,

particularly in the rural areas. From Table 3.1, it can also be seen that:

� Public sector banks account for bulk of the branches in India (88

percent in 2009).

� In the rural areas, the presence of the public sector banks is

overwhelming; in 2009, 96 percent of the rural bank branches

belonged to the public sector. The private sector banks and foreign

banks have limited presence in the rural areas.

73

Table 3.1

Break-up of Bank Branches (as on June 30, 2009)

Type of Bank 1969 2004 2009 Rural Branches as on June 30, 2009

Rural Branches as % of all branches on June 30, 2009

SBI & Associates 2462 13621 16294 5619 34.4

Nationalised Banks 4553 33359 39703 13425 33.8

Regional Rural Banks 14486 15199 11644 76.6

Total Public Sector Banks

7015 61466 71196 30688 43.1

Other Scheduled Commercial banks 900 5807 8979 1126 12.5

Foreign Banks 130 218 295 4 1.4

Non-scheduled Commercial Banks 217 32 44 11 25.0

Total (All Commercial Banks)

8262 67523 80514 31829 39.5

Source: Economic Survey 2009-10, Government of India. Regional Rural Banks

Regional Rural Banks (RRBs) were established during 1976-1987 with

a view to develop the rural economy. Each RRB is owned jointly by the

Central Government, concerned State Government and a sponsoring public

sector commercial bank. RRBs provide credit to small farmers, artisans, small

entrepreneurs and agricultural labourers. Over the years, the Government

has introduced a number of measures of improve viability and profitability of

RRBs, one of them being the amalgamation of the RRBs of the same

sponsored bank within a State. This process of consolidation has resulted in

a steep decline in the total number of RRBs to 86 as on March 31, 2009, as

compared to 196 at the end of March 2005.

74

Private Sector Banks

In this type of banks, the majority of share capital is held by private

individuals and corporates. Not all private sector banks were nationalized in

1969, and 1980. The private banks which were not nationalized are

collectively known as the old private sector banks and include banks such as

The Jammu and Kashmir Bank Ltd., Lord Krishna Bank Ltd etc. Entry of

private sector banks was however prohibited during the post-nationalization

period. In July 1993, as part of the banking reform process and as a measure

to induce competition in the banking sector, RBI permitted the private sector

to enter into the banking system. This resulted in the creation of a new set of

private sector banks, which are collectively known as the new private sector

banks. As at end March, 2009 there were 7 new private sector banks and 15

old private sector banks operating in India.

Foreign Banks

Foreign banks have their registered and head offices in a foreign

country but operate their branches in India. The RBI permits these banks to

operate either through branches; or through wholly-owned subsidiaries. The

primary activity of most foreign banks in India has been in the corporate

segment. However, some of the larger foreign banks have also made

consumer- financing a significant part of their portfolios. These banks offer

products such as automobile finance, home loans, credit cards, household

consumer finance etc. Foreign banks in India are required to adhere to all

banking regulations, including priority-sector lending norms as applicable to

domestic banks. In addition to the entry of the new private banks in the mid-

90s, the increased presence of foreign banks in India has also contributed to

75

boosting competition in the banking sector.

Foreign Banks

At the end of June 2009, there were 32 foreign banks with 293

branches operating in India. Besides, 43 foreign banks were operating in

India through representative offices. Under the World Trade Organisation

(WTO) Agreement, RBI allows a minimum 12 branches of all foreign banks to

be opened in a year.

Co-operative Banks

Co-operative banks cater to the financing needs of agriculture, retail

trade, small industry and self-employed businessmen in urban, semi-urban

and rural areas of India. A distinctive feature of the co-operative credit

structure in India is its heterogeneity. The structure differs across urban and

rural areas, across states and loan maturities. Urban areas are served by

urban cooperative banks (UCBs), whose operations are either limited to one

state or stretch across states. The rural co-operative banks comprise State

co-operative banks, district central cooperative banks, SCARDBs and

PCARDBs.

The co-operative banking sector is the oldest segment of the Indian

banking system. The network of UCBs in India consisted of 1721 banks as at

end-March 2009, while the number of rural co-operative banks was 1119 as

at end-March 2008. Owing to their widespread geographical penetration,

cooperative banks have the potential to become an important instrument for

large-scale financial inclusion, provided they are financially strengthened.

The RBI and the National Agriculture and Rural Development Bank

(NABARD) have taken a number of measures in recent years to improve

76

financial soundness of co-operative banks.

Functions of Commercial Banks

Commercial banks play a very important role in our economy. In fact, it

is difficult to imagine how our economic system could function efficiently

without many of their services. They are the heart of our financial structure. In

addition to mobilizing deposits by inculcating banking habit and spreading the

message of thrift, by lending and investing these resources productively, the

banks make possible a more complete utilization of the resources of the

nation. Thus, through their lending and investing banks facilitate the

economic process of production, distribution and consumption. By mopping

up savings, they maintain a balance between present and future consumption

and thus act as a lever controlling the prices. Commercial banking has been

referred to as “department store of finance” a term that has been coined by

commercial banks since it implies that they provide a wide variety of financial

services and, consequently, places them in a stronger competitive position.5

According to section 6 of the Banking Regulation Act, 1949, the primary

functions of a bank are: The borrowing, raising or taking up of money; the

lending or advancing of money either upon or without security; and drawing,

making, accepting, discounting, buying, selling, collecting and dealing in bills

of exchange, hundies, promissory notes, coupons, drafts, bills of exchange,

railway receipts, warrants, debentures, certificates, scripts and other

instruments, and securities whether transferable or negotiable or not. 5

77

Financial Performance of Scheduled Commercial Banks

Performance evaluation is an important pre-requisite for sustained

growth and development of any institution. As in the case of any institution,

the evaluation of the performance of banks has to be undertaken in relation to

their goals and objectives. In the fore going pages an attempt has been made

to analyze the financial performance of scheduled commercial banks on the

following parameters: Deposits, Total Income, Total Expenditure, Operating

Profit, and Net Profit. The year/ sector wise deposits of scheduled commercial

banks are shown in table 3.2.

Table 3.2 Year/Sector-wise Deposits of Scheduled Commercial Banks

(Rs. In Crore)

Years Public Sector Banks Private Sector Banks Foreign Banks Total

2001-02 968749

(80.55)

169440

(14.09)

64511

(5.36)

1202700

(100)

2002-03 1079167

(79.60)

207174

(15.28)

69313

(5.11)

1355654

(100)

2003-04 1229463

(77.89)

268782

(17.03)

80206

(5.08)

1578451

(100)

2004-05 1436541

(78.18)

314630

(17.12)

86389

(4.70)

1837560

(100)

2005-06 1622481

(74.95)

428456

(19.79)

112750

(5.21)

2164687

(100)

2006-07 1994200

(73.94)

551987

(20.47)

150750

(5.59)

2696937

(100)

2007-08 2453868

(73.40)

675033

(20.19)

214077

(6.40)

3342978

(100)

2008-09 3112748

(77.04)

726379

(17.98)

191161

(4.73)

4040288

(100)

2009-10 3691802

(77.68)

822801

(17.31)

237853

(5.00)

4752456

(100)

2010-11 4372985

(77.86)

1002759

(17.85)

240689

(4.29)

5616432

(100)

Source: RBI, Report on Trend and Progress of Banking in India various Issues.

78

Table 3.2 shows year/sector wise deposit mobilization of Scheduled

Commercial Banks (SCBs) in absolute terms and its percentage to total over

a ten year period from 2001-02 to 201011. The deposits of SCBs increased

from Rs. 12,02,700 crore in 2001-02 to Rs. 56,16,432 crore in 2010-11. The

increases in deposits of public sector banks, private sector banks and foreign

banks were impressive during the years 2001-2011. The deposits of public

sector banks in 2001-02 totalled Rs. 9,68,749 crore and they increased to Rs.

43,72,985 crore in 2010-11. The deposits of private sector banks in 2001-02

totalled Rs. 1,69,440 crore and in 2010-11 Rs. 10,02,759 crore, The deposit

mobilization of foreign banks in 2001-02 was Rs. 64,511 crore and in 2010-11

Rs.2,40,689 crore , Deposit mobilization of all banks showing an increasing

trend.

The percentage of deposits of public sector banks when compare to

the deposits of total banks declined from 80.55 percent to 77.86 percent

during the 2001-02 to 2010-11 period. The total deposits percentage of

private sector banks has increased from 14.09 percent to 17.85.percent

during the 2001-02 to 2010-11 period. The total deposits percentage of

foreign banks declined from 5.36 percent to 4.29 percent during the 2001-02

to 2010-11 period.

Cash Deposits Ratio

Table 3.3 depicts the Cash Deposits Ratio was more consistent in

terms of dispersion for Private Banks group (C.V. 12.87 per cent) followed by

Nationalized group (C.V. 15.06 per cent) and less consistent for SBI group

(C.V. 19.50 per cent)

79

An insight into the SBI group reveals that this ratio fluctuated between

12.39 per cent in 2000-2001 and 6.63 per cent in 2009-2010. The average of

this ratio for this group during the study period stood at 8.60 per cent, the

least amongst all the three groups. Among this group, this ratio was minimum

(6.05 per cent) during 2007 - 2008 and maximum (12.39 per cent) during

2000-2001.

An analysis of this ratio reveals that the Nationalized Banks group

varied between 12.10 per cent in 2000-2001 and 9.61 per cent in 2009-2010.

The average of this ratio was worked out at 9.77 per cent over the period of

study. Among this group, this ratio was minimum (8.40 per cent) during 2007-

2008 and maximum (12.10 per cent) during 2000-2001.

80

Table 3.3

Cash Deposits Ratio

Year SBI Group Nationalized Banks Group

Private Banks Group

2000 - 2001 12.39 12.10 14.90

2001 - 2002 11.81 11.54 14.55

2002 - 2003 11.43 10.51 13.33

2003 - 2004 9.48 9.87 12.07

2004 - 2005 9.15 9.05 11.91

2005 - 2006 6.05 8.53 11.46

2006 - 2007 6.98 9.00 11.79

2007-2008 6.05 8.40 10.03

2008-2009 6.05 9.12 7.70

2009-2010 6.63 9.61 6.12

Mean 8.60 9.77 11.39

SD 2.58 1.25 2.79

CV 29.97 12.82 24.53

Source: Data calculated from Statistical Tables Relating to Banks in India,

R.B.I., Mumbai Issues of relevant years

The Private Banks group witnessed an average ratio of 11.39 per cent

over the study period. This ratio varied between 14.90 per cent in 2000-2001

and 6.12 per cent in 2009 - 2010. Among this group, this ratio was minimum

(6.12 per cent) during 2009-2010 and maximum (14.90 per cent) during

2000-2001.

Thus, it can be inferred that SBI group, Private Banks group and

Nationalized Banks group in that order have Ratio of Cash Deposits Ratio

81

during the period under study. The higher profitability is achieved at the

optimal level of the ratio of cash to deposits for Private banks group 11.79 per

cent, Nationalized Banks group 9.00 per cent and SBI group 12.39 per cent

during the period of study.

Credit Deposit Ratio

Table 3.4 depicts the credit deposit ratio was more consistent in terms

of dispersion for Private Banks group (C.V. 12.87 per cent) followed by

Nationalized group (C.V. 15.06 per cent) and less consistent for SBI group

(C.V. 19.50 per cent)

An insight into the SBI group reveals that this ratio fluctuated between

55.57 per cent in 2001 and 58.22 per cent in 2009-2010. The average of this

ratio for this group during the study period stood at 54.68 per cent, the least

amongst all the three groups. Among this group, this ratio was minimum

(51.91 per cent) during 2001 - 2002 and 2001 - 2002 and maximum (58.22

per cent) during 2009-2010.

An analysis of this ratio reveals that the Nationalized Banks group

varied in between 43.76 per cent in 2000-2001 and 71.06 per cent in 2009-

2010. The average of this ratio was worked out at 51.86 per cent over the

period of study. Among this group, this ratio was minimum (43.76 per cent)

during 2000-2001 and maximum (71.06 per cent) for during 20092010.

82

Table 3.4

Credit Deposit Ratio

Year SBI Group Nationalized Banks Group

Private Banks Group

2000- 2001 55.57 43.76 50.90

2001 - 2002 51.91 44.01 50.13

2002 - 2003 52.24 45.24 50.40

2003 - 2004 52.62 46.73 50.31

2004 - 2005 53.41 49.54 50.04

2005 - 2006 53.54 50.50 51.88

2006 - 2007 54.67 50.82 52.78

2007-2008 56.98 53.43 58.97

2008-2009 57.65 63.48 63.27

2009-2010 58.22 71.06 71.60

Mean 54.68 51.86 55.03

SD 2.31 8.89 7.33

CV 0.04 0.17 0.13

Source: Data calculated from Statistical Tables Relating to

Banks in India, R.B.I., Mumbai Issues of relevant years

The Private Banks group witnessed an average ratio of 55.03 per cent

over the study period. This ratio varied between 50.90 per cent in 2000-2001

and 70.60 per cent in 2009-2010. Among this group, this ratio was minimum

(50.04 per cent) during 2004-2005 and maximum (71.60 per cent) during

2009-2010.

Thus, it can be inferred that SBI group, Private Banks group and

Nationalized Banks group in that order have credit deposit ratio during the

83

period under study. The higher profitability is achieved at the optimal level of

the credit to deposits for Private banks group 52.78 per cent, Nationalized

Banks group 50.82 per cent and SBI group 55.57 per cent during the period of

study.

Year/Sector-wise Income and Expenditure of Commercial Banks are

shown in table 3.5.

Table3.5

Year/Sector-wise Income and Expenditure of Commercial Banks

(Rs. In Crore)

Years Income Total Expenditure Total

Public Sector Banks

Private Sector Banks

Foreign

Banks

Public Sector Banks

Private Sector Banks

Foreign

Banks

2001-02 122814

(78.43)

20817

(13.29)

12960

(8.28)

156590

(100)

100363

(79.65)

16189

(12.85)

9447

(7.50)

125999

(100)

2002-03 134286

(75.47)

31611

(17.76)

12044

(6.77)

177941

(100)

103857

(76.01)

24462

(17.90)

8316

(6.09)

136635

(100)

2003-04 143818

(75.00)

33153

(17.45)

13012

(6.89)

189984

(100)

103300

(75.81)

24945

(18.31)

8025

(5.89)

136270

(100)

2004-05 150706

(76.74)

32633

(16.62)

13036

(6.64)

196375

(100)

116169

(71.89)

29075

(17.99)

11032

(6.83)

161601

(100)

2005-06 159780

(72.38)

43314

(19.62)

17663

(8.00)

220754

(100)

111475

(76.94)

24948

(17.22)

8459

(5.84)

144882

(100)

2006-07 188979

(68.67)

62267

(22.63)

24955

(9.07)

275198

(100)

116211

(64.64)

48215

(26.82)

15357

(8.54)

179783

(100)

2007-08 245939

(66.67)

87998

(22.86)

34948

(9.47)

368884

(100)

195499

(68.54)

68765

(24.11)

20960

(7.35)

285224

(100)

2008-09 315608

(68.04)

103014

(22.21)

45213

(9.75)

463835

(100)

248637

(70.54)

78838

(22.37)

25117

(7.13)

352492

(100)

2009-10 354876

(71.77)

103229

(20.88)

36341

(7.39)

494446

(100)

278015

(74.71)

74057

(19.90)

19.90

(5.39)

372112

(100)

2010-11 414183

(72.51)

117553

(20.58)

39494

(6.91)

571230

(100)

100363

(79.65)

16189

(12.85)

12.85

(5.49)

422019

(100)

Source: RBI, Report on Trend and Progress of Banking in India various Issues

84

Table 3.5 illustrates the year/year wise total income and expenditure

and its percentage to total of SCBs in absolute terms over a ten year period

from 2001-11. The total income of SCBs has been increasing from year to

year. In the sense that, total income of SCBs in 2001-02 was Rs. 1,56,590

crore and it has increased to Rs. 5,71,230 crores in 2010-11 period. The

individual group of banks also increased year to year, it means that the total

income of public sector banks has increased from Rs. 1,22,814 crore in 2001-

02 to Rs. 4,14,183 crore in 2010-11. The total income of private sector banks

has been increased from Rs. 20,817 crore in 2001-02 to Rs.117,553 crore in

2010-11 period and that of the foreign banks also increased from Rs. 12,960

crore to Rs. 39,494 crore during 2001-02 to 2010-11 years respectively.

The total income percent to total of public sector banks recorded a

significant decreasing trend from 78.43 percent to 72.51 percent during 2001-

02 to 2010-11 period. Private sector banks total income percent to total has

been increasing year to year, that is the percentage increased from 13.29 per-

cent to 20.58 percent during 2001-02 to 2010-11 period. But the total income

percent to total of foreign banks was fluctuating during 2001-02 to 2010-11

period.

Total expenditure and percentage of total expenditure to total of

commercial from 2001-02 to 2010-11of SCBs recorded slow growth from

Rs.1,25,999 crore in 2001-02 to Rs. 4,22,019 crore in 2010-11. The public

sector banks total expenditure has increased from Rs. 1,00,363 crore in

200102 to Rs. 3,14,118 crore in 2010-11. The total expenditure of private

sector banks has been increased from Rs.16,189 crore in 2001-02 to Rs.

85

84,721 crore in 2010-11 and the total expenditure of foreign banks also

increased from Rs.9,447 crore in 2001-02 to Rs. 23,180 crore in 2010-2011.

All banks recorded a slow increase in expenditure during the years 2001-11.

The total expenditure percentage of public sector banks to total has

significantly decreased from 79.65 percent to 74.43 percent during the years

2001-02 to 2010-11. The total expenditure percentage of Private sector banks

to total increased from 12.85 percent in 2001-02 to 20.08 percent in 2010-11

and the total expenditure percentage of foreign banks to total fluctuated

during the same period. The year/ sector wise operating profits and net profits

of scheduled commercial banks are shown in table 3.6.

86

Table 3.6

Year/Sector-wise Operating Profit and Net Profit of Commercial Banks

(Rs. In Crore)

Year

Operating profit

Total

Net Profit

Total Public Sector Banks

Public Sector Banks

Private Sector Banks

Public Sector Banks

Public Sector Banks

Private Sector Banks

2001-02 21673 (72.69)

4628 (15.52)

3513 (11.78)

29814 (100)

8914 (73.16)

1779 (14.60)

1492 (12.24)

12185 (100)

2002-03 29717 (73.05)

7236 (17.79)

3728

(9.16)

40681 (100)

12877 (73.14)

2913 (16.54)

1817 (10.32)

17607 (100)

2003-04 39290 (74.69)

8325 (15.83)

4986

(9.48)

52601

(100)

17302

(75.14)

3481

(15.12)

2243

(9.74)

23026

(100)

2004-05 39413

(76.26)

7673

(14.85)

4597

(8.89)

51683

(100)

16162

(74.56)

3533

(16.30)

1982

(9.14)

21677

(100)

2005-06 37967

(69.80)

9768

(17.96)

6658

(12.24)

54393

(100)

16538

(62.27)

4975

(20.24)

3071

(12.49)

24584

(100)

2006-07 42268

(64.12)

14048

(21.31)

9600

(14.56)

65916

(100)

20152

(64.58)

6469

(20.73)

4583

(14.69)

31204

(100)

2007-08 50307

(60.18)

19236

(23.01)

14047

(16.80)

83590

(100)

26591

(62.24)

9518

(22.28)

6612

(15.48)

42721

(100)

2008-09 66972

(60.15)

24279

(21.80)

20098

(18.05)

111349

(100)

34392

(65.18)

10865

(20.59)

7508

(14.22)

52765

(100)

2009-10 76861

(62.82)

29173

(23.84)

16314

(13.33)

122348

(100)

39257

(68.74)

13111

(22.96)

4741

(13.15)

57109

(100)

2010-11 100665

(67.20)

32831

(21.92)

16301

(10.88)

149797

(100)

44901

(63.84)

17712

(25.18)

7719

(10.96)

70332

(100)

Source: RBI, Report on Trend and Progress of Banking in India various Issues

Table 3.6 depicts the year/year wise operating profit and net profit of

SCBs over a ten year period from 2001-02 to 2010-11 period. The operating

profit of total SCBs increased from Rs. 29,814 crore to Rs. 1,49,797 crore

during 2001-02 to 201011 period. The operating profit of public sector banks

was an impressive Rs. 21,673 crore in 2001-02 and it has increased to Rs.

1,00,665 crore in 2010-11 period. The operating profit of private sector banks

has increased from Rs. 4,628 crore to Rs. 32,831 crore in the years 2001-02

87

to 2010-11 and foreign banks operating profit also increased from Rs.3,513

crore to Rs. 16,301 crore during the same period.

The operating profit percentage of public sector banks to total has

decreased from 72.69 percent to 67.20 percent during 2001-02 to 2010-11.

The operating profit percent to total percent of private sector banks has

increased from 15.52 percent to 21.92 percent during 2001-02 to 2010-11

and the operating profit percent to total of foreign banks has fluctuating during

2001-02 to 2010-11 period.

The year/sector wise net profits and their percentage to total of SCBs

during 2001-02 to 2010-2011 is an increasing trend, noticed particularly in the

case of public sector banks and private sector banks during the above said

period. The net profit of SCBs increased from Rs. 12,185 crore to 70,332

crore during 2001-02 to 2010-11 respectively. The public sector banks net

profit shows an increasing trend from Rs. 8,914 crore to Rs. 44,901 crore

during 2001-02 to 2010-11 period. The private sector banks net profit has

increased from Rs. 1,779 to Rs. 17,712 crore during 2001-02 to 2010-11 and

the foreign banks net profit also increased from Rs. 1,492 crore to Rs. 7,719

crore during 2001-02 to 2010-11 but there were fluctuations.

The net profit percentage to total of public sector banks has decreased

from 73.16 percent to 63.84 percent during 200102 to 2010-11. The net profit

percentage to total of private sector banks significantly increased from 14.60

percent to 25.18 percent during 2001-02 to 2010-11 and the net profit

percentage to total of foreign banks was fluctuating during 2001-02 to 2010-

11 period.

88

Non-Performing Assets of Public and Private Sector Banks

The quality of Indian banks’ assets is likely to deteriorate over the

next two years. This will be driven by the slowdown in the economy, and by

the aging of loans made in recent years. The NPAs are considered as an

important parameter to judge the performance and financial health of banks.

The level of NPAs is one of the drivers of financial stability and growth of the

banking sector. The Financial companies and institutions are nowadays facing

a major problem of managing the Non Performing Assets (NPAs) as these

assets are proving to become a major setback for the growth of the economy.

NPAs in simple words may be defined as the borrower does not pay principal

and interest for a period of 180 days. However, it is taken into consideration

now that default status would be given to a borrower if dues are not paid for

90 days. If any advance or credit facility granted by the bank to a borrower

becomes nonperforming, then the bank will have to treat all the

advances/credit facilities granted to that borrower as non-performing without

having any regard to the fact that there may still exists certain advances /

credit facilities having performing status.6

Categories of NPAs

Standard Assets

Standard assets are the ones in which the bank is receiving interest as

well as the principal amount of the loan regularly from the customer. Here it is

also very important that in this case the arrears of interest and the principal

amount of loan do not exceed 90 days at the end of financial year. If asset

fails to be in category of standard asset that is amount due more than 90 days

then it is NPA and NPAs are further need to classify in sub categories. Banks

89

are required to classify non-performing assets further into the following three

categories based on the period for which the asset has remained non-

performing and the reliability of the dues:

(1) Sub-standard Assets

(2) Doubtful Assets

(3) Loss Assets

Sub-Standard Assets

With effect from 31 March 2005, a sub standard asset would be one,

which has remained NPA for a period less than or equal to 12 month. The

following features are exhibited by sub standard assets: the current net worth

of the borrowers / guarantor or the current market value of the security

charged is not enough to ensure recovery of the dues to the banks in full; and

the asset has well-defined credit weaknesses that jeopardize the liquidation of

the debt and are characterized by the distinct possibility that the banks will

sustain some loss, if deficiencies are not corrected.7

Doubtful Assets

A loan classified as doubtful has all the weaknesses inherent in assets

that were classified as substandard, with the added characteristic that the

weaknesses make collection or liquidation in full, on the basis of currently

known facts, conditions and values - highly questionable and improbable.

With effect from March 31, 2005, an asset would be classified as

doubtful if it remained in the sub-standard category for 12 months.8

90

Loss Assets

A loss asset is one which considered uncollectible and of such little

value that its continuance as a bankable asset is not warranted- although

there may be some salvage or recovery value. Also, these assets would have

been identified as ‘loss assets’ by the bank or internal or external auditors or

the RBI inspection but the amount would not have been written-off wholly.

Meaning of NPA

Non performing asset means an asset or account of borrower, which

has been classified by a bank or financial institution as substandard, doubtful

or loss asset, in accordance with the direction or guidelines relating to asset

classification issued by RBI.9

An amount due under any credit facility is treated as “past due” when it

has not been paid within 30 days from the due date. Due to the improvement

in the payment and settlement systems, it was decided to dispense with “past

due” concept, with effect from March 31, 2001. Accordingly, as from that date,

a non performing asset (NPA) shall be an advance where:10

� Interest and/or installments of principal remain overdue for a period of

more than 180 days in respect of a term loan.

� The account remains “out of order” for a period of more than 180 days

in respect of an overdraft/ cash credit.

� The bill remains overdue for a period of more than 180 days in the

case of bills purchased and discounted.

� Interest and/or installments of principal remain overdue for two harvest

but for a period not exceeding two half years in the case of an

91

advance granted for agricultural purpose.

� Any amount to be received remains overdue for a period of more than

180 days in respect of other account.

� With a view to moving towards international best practices and to

ensure greater transparency it has been decided to adopt the 90 days

over due norm for identification to NPA, from the year ending March

31, 2004. Accordingly, with effect from March 31, 2004 a Non-

performing Asset (NPA) shall be a loan or an advance where: Interest

and/or installment of principal remain overdue for a period of more

than 90 days in respect of a term loan.

� The account remains “out of order” for a period of more than 90 days

in respect of an over draft/ cash credit.

� The bill remains overdue for a period of more than 90 days in the case

of bills purchase and discounted.

� Interest and/or installment of principal remain overdue for two harvest

season but for a period not exceeding two half year in the case of an

advance granted for agricultural purpose, and

� Any amount to be received remains overdue for a period of more than

90 days in respect of other accounts.

92

Table 3.7

Reserve Bank of India’s Guideline for Non-Performing Assets Recognition

Loans and Advances Guidelines Applicable from 31.3.2001

Guidelines Applicable from 31.3.2004

Term loan interest and/or installment remain over due for more than

180 days 90 days

Overdraft/credit A/c Remains out of order Remains out of order

Bill Purchased and discounted remains over due for more than

180 days 90 days

Agricultural loan interest and or installments remain over due for

Two harvest seasons but not exceeding two and half years

Two harvest seasons but not exceeding two and half years

Other accounts - any amount to be received remains over due for more than

80 days 90 days

Source: Reserve Bank of India.

Out of Order

An account should be treated as “out of order”, if the outstanding

balance remains continuously in excess of the sanctioned limit/drawing

power. In case where the outstanding balance in the principal operating

account is less than the sanctioned limit/drawing power, but there was not

credits continuously for six months as on the date of balance sheet or credits

are not enough to cover the interest debited during the same period, these

account should be treated as “out of order”.11

Overdue

Any amount due to the hank under any credit facility is overdue if it is

not paid on the due date fixed by the bank.

93

Cause of NPA

As the focal point of this paper is a critical study on reduction of

nonperforming assets in banks a brief account of the system of banking in

India has been analyzed in the paper. Different phases in the growth and

expansion of banking have also been outlined. The problems have been

identified and comparative statistics of NPA have been detailed. To proceed

further, attention has been focused on causes of NPA in this chapter and

investigative data are provided to ponder upon.12

It would be interesting to identify and investigate the main cause, which

have forced performing assets to became nonperforming assets. These

causes can be categorized into three as follows.

• Banks

• Borrowers

• Government

Banks

Improper Selection of Borrower

Selection of borrower is a very important part in financing as the whole

story starts with it. Selection of borrower should be done very cautiously. It

would be right to say that the most important factor, which needs to be

studied, is a borrower, his character and competency, but very little has been

said regarding the character and competency, of borrowers in the context of

loaning.13

Inordinate Delay in Financing

It is clear that owing to delay the borrower does not get loan at the time

94

of need this would normally upset his plant of investment. Obviously, this will

have a bearing the borrower’s plan of returning the loan and as a

consequence the assets may turn into NPA.

Poor Interaction with the Borrowers

It has been found that the interactions with the borrowers are very

poor. While interacting, many information can be taken, like his thinking

regarding loan, views regarding repayment, his earning, family back ground

etc. After disbursement, when bankers do not meet the borrowers

periodically, they tend to forget the bank and their repayment l i ab i l i t y to the

bank also out of sight, out of mind, thus goes a saying.14

Other Reasons

Briefly other reasons are:

� Unrealistic terms and conditions.

� Lengthy and time taking procedure of lending.

� Lack of supervision and follow up.

� Lack of management information system.

� No direct inquiry at the time of sanction.

Borrowers

Reasons for which borrowers can be held liable for NPAs are:

• Diversion of funds

• Willful defaulters

• Other reasons.

95

Diversion of Funds

Diversion of funds means the loan are not used for the purpose for

which it is sanctioned, many areas have been identified where he can divert

the loan. Chief among them are:15

� Utilization of loan to repay the old debt.

� Utilization of loans towards other purposes such, as house purpose

etc.

� Utilization of loans towards marriage of wards.

� Utilization of loan towards death r i t ua l s in rural areas.

� Utilization of loan for comfort of life.

Reasons peculiar to Indian PSBs

Apart from the above reasons, there are a number of typical reasons

leading to emergence of the NPA problem in the case of Indian PSBs. Some

of these include malfunctioning of the institutional environment, captured by

its economic, political, legal, social manifestations. The other reasons include

use of the bank as an instrument of public policy, incompatibility of bank’s

interest with certain policy instruments as well as the change in the economic

regime. It is also argued that new laws on environment and social security not

envisagd at the time of appraisal have also contributed to accumulation of

NPA. 16

96

Defaulter friendly legal system

RBI report (1999) on NPA pointed out lacunae in credit recovery, largely

arising from inadequate legal provisions on foreclosure and bankruptcy, long

drawn legal procedures and difficulties in execution of the decrees awarded

by the court. The legal system does not permit early recovery of dues. The

report said that the Indian legal system is sympathetic towards borrowers and

works against bank’s interest (defaulter friendly legal system). It may also be

mentioned that there is no social stigma attached to the defaulters, especially

wilful defaulters. Further, it is becoming increasingly futile to keep the litigation

alive for long, as it is only a drain on resources. These legal procedures are

highly time consuming as the matters get invariably delayed with law courts

granting adjournments one after another for any small reason. More money is

spent than what is hoped to be recovered by pursuing these cases in the

courts of law. Despite most of the loans being backed by security, banks are

unable to enforce their claims on the collateral, when loans turn non-

performing, and therefore loan recoveries remain insignificant. Un-

sustainability of litigation in cases where borrowers are neither paying up nor

likely to do so makes provisioning against these NPAs a losing proposition.

The bank may feel that a write-off against such loans would help clean up the

balance sheet and induce greater transparency. Thus there may be a

tendency to write off a small amount of advances in the face of prohibitive

legal and administrative cost and inordinate delay in final settlement.17

97

Use of bank as an instrument of public policy

A number of examples may be cited in order to show that the use of

PSBs as an instrument of public policy has helped accumulation of NPAs.

Lending under populist schemes like loan melas, directed lending to certain

sectors like mini-steel, mini-paper, mini-cement units, sugar and cotton

spinning co-operatives are examples.

Use of certain policy instruments cutting across interest of banks

Indecision on exiting out of bad loans through OTS due to fear of

investigating agencies like CBI, CVC-have all contributed to worsening the

NPA situation of the banks. The banks are owned by the government, which

brings them under the purview of CVC, and business decisions are given a go

by for adhering to procedures. The private and foreign banks are outside the

purview of the CVC, which makes them recover and write off at a faster pace.

BIFR is an escape route easily available to a willful defaulter. Once the case

is registered with BIFR, the bank’s option to proceed legally is closed. For

quite a few corporate houses, reaching to BIFR has become the most

convenient route to avoid bank litigation. Over the years the process of revival

of sick industries has led to a situation in which the corporate houses do not

mind blackmailing the lenders with the threat of taking refuge under the Sick

Industrial Companies (Special Provisions) Act. The BIFR experience shows

how it has become a safe haven for companies that want to deter a feasible

solution such as closure and prefer to be parasites on public money. There is

a proposal to repeal Sick Industrial Companies Act that will prevent defaulting

companies from taking refuge in BIFR.18

98

Intentional misuse of settlement policy of RBI

RBI has initiated a policy of settlement of loans with the borrowers, where

an element of concession is granted to the defaulters. This has created a

moral hazard problem where even the smaller and less influential borrowers

are refusing to pay off their loan and increasing a developing a tendency to

misuse of settlement policy of RBI.

Euphoria generated with liberalization

A dream of globalisation led to huge investments which unfortunately

could not be utilized due to hesitant liberalization policies. Large corporate

houses delayed payments and contributed indirectly to NPA of SSI units.

Projects financed in the pre-reform era, with high gearing, low promoter’s

stake, with viability based on high tariff and fiscal concessions have turned

sick in the new regime.15

Gross NPAs to Gross Advances

Gross NPAs are the sum total of all loan assets classified as NPAs as

per RBI guidelines. Gross NPA shows the nature of the loans made by banks.

It includes all the Non-Standard assets like Sub-Standard, Doubtful and Loss

assets. It can be understood with the help of the following ratio.

Gross NPAs ratio = Gross NPAs/ Gross Advances. Table 3.8 shows the

Scheduled Commercial Banks' Gross Advances and Gross NPAs during the

study period.

99

Table 3.8

Scheduled Commercial Bank’s Gross NPAs To Gross Advances

(Rs. in crore)

Year

Public Sector Banks Private Sector Banks Foreign Banks Scheduled Commercial

Banks

Gross

Adv.

Gross NPAs Gross

Adv.

Gross NPAs Gross

Adv.

Gross NPAs Gross

Adv.

Gross NPAs

Amt. % to

Gross Adv.

Amt. % to

Gross Adv.

Amt. % to

Gross Adv.

Amt. % to

Gross Adv.

2004-05 8,77,825 48,399 5.5 1,97,832 8,782 4.44 77,026 2,192 2.8 11,52,682 59,373 5.2

2005-06 11,34,724 41,358 3.6 3,17,690 7,811 2.46 98,965 1,928 1.9 15,51,378 51,097 3.3

2006-07 14,64,493 38,968 2.7 4,20,145 9,256 2.2 1,27,872 2,262 1.8 20,12,510 50,486 2.5

2007-08 18,19,074 40,595 2.2 5,25,845 12,983 2.47 1,62,966 2,857 1.8 25,07,885 56,435 2.3

2008-09 22,83,473 45,156 2.0 5,85,065 16,983 2.9 1,69,716 6,833 4.0 30,38,254 68,973 2.3

2009-10 27,36,347 59,926 2.19 6,44,517 17,639 2.74 1,67,365 7,180 4.29 35,45,899 84,747 2.39

2010-11 33,45,919 74,614 2.23 8,11,843 18,240 2.25 1,99,527 5,068 2.54 43,52,088 97,922 2.25

Source: Report on Trend Progress of Banking in India 2002-11, Reserve Bank of India, India

100

Table-3.8 reveals that Gross advance of Scheduled Commercial Banks

(SCBs) was Rs. 11, 52,682 crore during 2004-05, which was increase to Rs.

43, 52,088 crore during 2010-11. The Gross NPAs of Scheduled Commercial

Banks have also been increasing year after year. Gross Non Performing

Assets of the Scheduled Commercial Banks have increased from Rs. 59,373

crore to Rs. 97,922 crore during the study period. The Gross NPAs to Gross

Advances ratio of SCBs declined from 5.2 % to 2.25% during the study

period. In case of public sector banks this ratio decreased from 5.5 % at the

end of March, 2005 to 2.23% at the end of March, 2011, in private sector

banks the ratio decreased from 4.44 % to 2.25% and in case of foreign banks

the ratio decelerated from 2.8 % to 2.54%. It clearly indicates that Gross

NPAs to Gross Advances ratio were higher in the public sector banks while

the least in foreign banks during the beginning of the study period. But the

trend has changed at the end of the study period that Gross NPAs ratio were

higher in the foreign banks i.e. 2.54 percent in 2010-11 while the least in the

public sector banks. It shows that Scheduled Commercial Banks have taken

effective steps to curb the NPAs.

Scheduled Commercial Banks Priority and Non -Priority Sector NPAs

Before the nationalization of banks, there was no target on the priority

sector. After nationalization it was just emphasized that commercial banks

should increase their involvement in financing of priority sector. The directed

lending policy of the Government under social banking motto led Scheduled

Commercial Banks to increase in the level of NPAs. To proof this issue the

research has compared priority and non-priority sector NPAs of various

bank's group during the study period in table -3.9.

101

Table 3.9

SCBs Priority and Non-Priority Sector NPAs

(Rs. in crore)

Year

Public Sector Banks Private Sector Banks Foreign Banks

Total NPAs Priority

Sector

Non Priority Sector

Total Priority

Sector

Non Priority Sector

Total Priority

Sector

Non Priority Sector

Total

2004-05 23,397.38

(49.05%)

24,299.10

(50.95%)

47,696.48

(100%)

2,188.46

(24.87%)

6,611.37

(75.13%)

8,799.83

(100%)

DNA DNA DNA 56,496.31*

2005-06 22,373.74

(54.07%)

19,004.49

(45.93%)

41,378.23

(100%)

2,284.03

(29.17%)

5,545.39

(70.83%)

7,829.42

(100%)

DNA DNA DNA 49,207.65*

2006-07 22,953.62

(59.46%)

15,648.17

(40.54%)

38,601.80

(100%)

2,884.18

(31.22%)

6,355.30

(68.78%)

9,239.48

(100%)

DNA DNA DNA 47,841.28*

2007-08 25,286.67

(63.62%)

14,461.83

(36.38%)

39,748.51

(100%)

3,418.53

(26.34%)

9,557.53

(73.66%)

12,976.06

(100%)

402.00

(12.90%)

2,712

(87.10%)

3,114

(100%)

55,838.57

2008-09 24,318

(55.20%)

19,725

(44.80%)

44,042

(100%)

3,640

(21.60%)

13,172

(78.40%)

16,887

(100%)

649

(9.1%)

6506

(90.90%)

7,155

(100%)

68,084.00

2009-10

30,848

(53.8%)

26,453

(46.2%)

57,301

(100%)

4,792

(27.60%)

12,592

(72.40%)

17,384

(100%)

1,170

(16.40%)

5956

(83.6%)

7,125

(100%)

81,810.00

2010-11 41,245

(58.1%)

29,803

(41.9%)

71,047

(100%)

4,823

(26.8%)

13,147

(73.2%)

17,971

(100%)

1,141

(22.5%)

3,924

(77.5%)

5,065

(100%)

94,083.00

Source: Report on Trend and Progress of Banking in India 2002-11, Reserve Bank of India, India.

102

Table-3.9 shows the NPAs in priority and Non-priority sector by three

major bank groups. It clearly indicates that NPAs in priority sector were more

in public sector banks when compared to private and foreign banks. This is

because advances by public sector banks to the priority sector were high. In

the case of public sector banks, first year of the study period NPAs in non-

priority sector were more than priority sector. From the year 2005-06 onwards

NPAs in priority sector were more than non-priority sector. This is due to poor

recovery of agricultural loans, which comprises the major portion of priority

sector advances. It is also noticed that 68 percent NPAs of private sector

banks were out of advances to non-priority sector than priority sector. This is

because private sector banks preferred to lend the non-priority sector than

the priority sector. More than 78 percent of NPAs of foreign banks was out of

advances to non-priority sector. It is clear from the table that priority sector

NPAs have significant impact on total NPAs in Public sector banks, whereas

in Private sector banks, priority sector NPAs have no significant impact on

total NPAs.

Priority Sector NPAs of Public Sector Banks

The broad categories of priority sector for all scheduled commercial are as

under:16

a) Finance to agriculture shall include short, medium and long term loans

given for agriculture and allied activities.

b) The micro and small enterprises shall include small road and water

transport operators, small business, professional & self-employed

persons.

c) Micro Credit and other financial services and products of amounts not

103

exceeding Rs.50, 000 per borrower.

d) Education Loans and advances granted to only individuals up to Rs.10

lakh for studies in India and Rs.20 lakh for studies abroad.

e) Housing Loans up to Rs.25 lakh to individuals for purchase/

construction.

f) Loans to Self Help Groups & Joint Liability Groups up to Rs. 50,000.

104

Table 3.10

Priority Sector NPAs of Public Sector Banks in India

(Rs. in Crore)

Year Agriculture Micro and Small Enterprises

Weaker

sections Others

Total Priority Sector NPAs

Total Priority Sector

Advances

Priority Sector

NPA Ratio

Gross NPA Ratio

2004-05 7,254.05 7,834.96 5,752.04 2,556.33 23,397.38 3,07,046 7.62 5.5

2005-06 6,202.92 6,917.40 5,023.22 4,230.20 22,373.74 4,09,748 5.46 3.6

2006-07 6,506.34 5,843.28 5,181.15 5,422.85 22,953.62 5,21,376 4.40 2.7

2007-08 8,268.03

(32.70%)

5,804.75

(22.96%)

5,388.00

(21.31%)

5,825.89

(23.03%)

25,286.67

(100%)

6,10,450 4.14 2.2

2008-09 5,708.09 6,984.00 5,074.00 6,552.00 24,318.00 7,20,083 3.38 2.0

2009-10 8,330.00 11,537.00 5,053.00 5,928.00 30,848.00 8,64,564 3.57 2.19

2010-11 14,487.00 14,340.00 7,929.00 4,488.00 41,245.00 10,22,925 4.03 2.23

Source: Report on Trend and Progress of Banking in India 2002-11, Reserve Bank of India, India.

105

Table 3.10 exhibits the priority sector advances and NPAs in priority

sector by public sector banks during the period under study. The total priority

sector credit of public sector banks have raised from Rs. 3,07,046 crore to

Rs. 10, 22,925 crore. The priority sector NPAs of public sector banks have

raised from Rs. 23,397.38 crore at the end of March, 2005 to Rs. 41,245

crore at the end of March, 2011. It is clear from the table that NPAs of the

Public sector banks by agriculture credit were around 30% during the study

period except during the years 2008-09 and 2009-10. The NPAs incurred by

public sector banks out of lending to Micro & Small Enterprises ranges

between 25% and 42%, weaker sections between 16% and 28%. Only 10%

of NPAs came from lending to remaining categories of priority sector. It is

observed that in terms of Priority Sector NPA ratio to Priority Sector

Advances there is a decline during the study period i.e., from 7.62 to 4.03. It

is understood from the above observation that the public sector banks have

recovered the priority sector credit in time and they managed the priority

sector credit effectively to safeguard themselves from the evils of NPAs.

Priority Sector NPAs of Private Sector Banks

The priority sector advances and its NPAs by Private sector banks can

be seen in Table 3.11.

106

Table 3.11 Priority Sector NPAs of Private Sector Banks in India

(Rs. In Crore)

Year Agriculture Micro& Small Enterprises

Weaker

sections Others

Total Priority Sector NPAs

Total Priority Sector

Advances

Priority Sector NPA

Ratio

Gross NPA Ratio

2004-05 465.40 964.31 207.98 550.77 2,188.46 69,886 3.13 4.44

2005-06 514.60 807.44 276.19 685.80 2,284.03 1,06,586 2.05 2.46

2006-07 860.51 644.59 149.31 1,229.77 2,884.18 1,44,549 2.00 2.2

2007-08 1,467.31

(42.92%)

651.11

(19.05%)

117.04

(3.42%)

1,183.07

(34.61%)

3,418.53

(100%)

1,64,068 2.08 2.47

2008-09 1,441.00 670.00 91.00 1,438.00 3,640.00 1,90,207 1.91 2.9

2009-10 2,023.00 1,139.00 130.00 1,500.00 4,792.00 2,15,552 2.22 2.74

2010-11 2,172.00 1,298.00 283.00 1,070.00 4,823.00 2,49,139 1.94 2.25

Sources: Report on Trend and Progress of Banking in India 2002-11, Reserve Bank of India, India.

107

The total priority sector credit of private sector banks have accelerated

from Rs. 69,886 crore to Rs. 2,49,139 crore. The priority sector NPAs of

private sector banks have raised from Rs. 2,188.46 crore at the end of March,

2005 to Rs. 4,823 crore at the end of March, 2011 i.e., raised 2 times . It is

observed from the table 3.5 that NPAs of the Private sector banks by

agriculture credit were increased year after year. It is around 22 % of total

NPAs at the end of March, 2005, but rose to 45% at the end of March,

2011.There is an increase in NPAs due to non recovery from weaker & other

sections. It is observed that in terms of Priority Sector NPA ratio to Priority

Sector Advances there is a decline during the study period. It is observed that

the private sector banks also recovered the priority sector credit in time.

NPA Management of Nationalised Banks

The banking system plays a significant and commendable role in the

growth and development of economy and its components. The banking

system mobilises the funds from the surplus units and distributes them to

deficit sectors for their productive and efficient utilisation. The banking sector

in India comprise of public sector bank, private sector banks and foreign

sector banks. Public sector banks are those in which majority of equity

holding is with government and includes SBI group (State bank and its

subsidiaries) and nationalised banks. Modern trade and commerce would

almost be impossible without the availability of suitable banking services and

it facilitates it in innumerable ways. Banks play an important role in the

mobilization, allocation of capital, progress and development of an economy.

The modern banking is not only confined to traditional business of the

accepting and lending money but have diversified their activities into new

108

fields of operations like merchant banking, leasing, housing finance, mutual

funds and venture capital. They have introduced a number of innovative

schemes for mobilizing deposits. In addition to the above they are providing

valuable services to their customers, issuing drafts, traveller cheques, gift

cheques, accepting valuables for safe custody and modern banking

facilities.19

The main business of banking is to accept deposits for the purpose of

lending, so it mobilises funds by issuing claims against itself and lends this

money to others in the form of loans which are assets for banks. The

liabilities and assets of banks are in the form of claims unlike other forms of

business. The mobilised money is lent in the form of loans which is major and

main activity of banking and comprises the largest asset in the asset portfolio

of the bank. The money lent are called loans or advances which earn income

for the bank in the form of interest, in addition to this banks invests a portion

of money in securities (both debt and equity) and a minor portion of total

funds is invested in real assets like land, building for carrying the operations

of banking.

The money is advanced in the form of loans and invested in securities

in expectation of income and repayment of principle at periodic intervals as

per the contractual obligations between the lender and borrower. The assets

which is performing as per the contractual obligations i.e. payment of interest

and repayment of principal as and when it fall due, it is called performing

asset or standard asset. The asset which fails to meet obligation of payment

of interest and repayment of principal within a specified date from due date is

called non performing asset or non standard asset.20

109

Non-performing asset (NPA) is one of the major concern and problem

for banks in India. NPAs reflect the degree of risk and quality of assets of

bank and profitability of a bank. A high level of NPAs suggests high

probability of a large number of credit defaults that affect the profitability and

net-worth of banks and also erodes the value of the asset. The NPA growth

involves reduced income from assets and the necessity of provisions, which

reduces the overall profits and shareholders’ value. The level of

nonperforming assets is at the alarming rate in Indian banking comparatively

to other countries. This level is much higher in case of public sector banks

due to their directional credit to priority sector projects and social

development projects. The public sector banks play an immense role in the

development and growth from the very inception. The public sector banks

which were operating on social model by mobilising the huge resources and

directing them to social and priority sectors for social and economic

development of the country. Due to their socio economic role, there was high

level of NPA’s s in their asset portfolio. After the liberalization in 1991, they

faced high level competition from private and foreign banks. Due to this fierce

competition and challenge on their survival, they were forced to improve the

performance and weakness. The biggest weakness and problem they faced

was huge NPA’S in their portfolio. This study aims to check what is the

position and level of nonperforming assets of nationalised banks which is

core and heart of public sector banking in India and which handles the major

portion of banking business in India. Gross nonperforming assets and

descriptive statistics and ranks of individual banks is given in table3.12.

110

Table 3.12

Gross Nonperforming assets and descriptive statistics and Ranks of individual banks

BANK/YEAR 2008 2009 2010 2011 2012 MEAN SD CAGR RANK

Allahabad Bank 2 1.81 1.69 1.8 1.91 1.84 0.12 -0.89 7

Andhra Bank 1.1 0.83 0.86 1.38 2.12 1.26 0.53 14.06 4

Bank of Baroda 1.8 1.27 1.42 1.62 1.89 1.6 0.26 0.97 6

Bank of India 1.7 1.71 2.86 2.64 2.91 2.36 0.61 11.31 13

Bank of Maharashtra

2.6 2.29 2.96 2.47 2.28 2.52 0.28 -2.62 16

Canara Bank 1.3 1.56 1.53 1.47 1.75 1.52 0.16 6.11 5

Central Bank of India

3.2 2.67 2.32 1.82 4.83 2.97 1.16 8.57 20

Corporation Bank 1.5 1.14 1.02 0.91 1.26 1.17 0.23 -3.37 2

Dena Bank 2.4 2.13 1.8 1.86 1.67 1.97 0.29 -6.96 9

IDBI Bank Limited 1.9 1.38 1.56 1.79 2.57 1.84 0.45 6.21 7

Indian Bank 1.2 0.89 0.88 0.99 1.94 1.18 0.44 10.05 3

Indian Overseas Bank

1.6 2.54 4.47 2.71 2.79 2.82 1.04 11.75 17

Oriental Bank of Commerce

2.3 1.53 1.74 1.98 3.17 2.14 0.64 6.61 10

Punjab & Sind Bank

0.7 0.65 0.72 0.99 1.65 0.94 0.42 18.65 1

Punjab National Bank

2.7 1.77 1.81 1.79 3.15 2.24 0.64 3.11 11

Syndicate Bank 2.7 1.93 2.19 2.65 2.75 2.44 0.36 0.36 15

UCO Bank 3 2.21 1.99 3.31 3.73 2.85 0.73 4.44 18

Union Bank of India

2.2 1.96 2.29 2.37 3.16 2.4 0.45 7.48 14

United Bank of India

2.7 2.85 3.21 2.51 3.41 2.94 0.37 4.76 19

Vijaya Bank 1.6 1.95 2.37 2.56 2.93 2.28 0.52 12.86 12

Source-RBI, CMIE

Table 3.12 shows the gross NPA ratio of nationalised banks for last

five years with necessary statistics like mean, growth rate of NPA’S via

CAGR. From the above table it is seen that gross NPA of nationalised

banks is in the upward trend generally in all the banks with varying growth.

The compound annual growth rate of banks under study is in the range of -

6.96 to 14.06 and banks are having value of compound annual growth rate

111

of gross NPA’S during this range. As per the mean which is representative

of a group of data, banks are ranked in ascending order. The reason for

ranking them in ascending order is from the interpretation of NPA that

better the performance, lower the ratio and vice versa. From the above

table it is found that Punjab and Sind bank is ranked first as it was able to

manage lowest means Gross Non Performing Assets (GNPAs) ratio of

0.94 percent, followed by corporation bank at second position with mean

GNPA ratio of 1.17 percent and third rank achieve by Indian bank. United

bank of Indian and Canara bank got lowest rank of 19 and 20 with a mean

ratio of 2.94 and 2.97 percent respectively.

The above table 3.12 portrays the GNPA ratio of all the banks for a

five year period shows the annual gross NPA ratios for a five year period. It

is seen from the table that some banks are having high gross NPA ratio

from year to year while others have kept it under controlled conditions.

From the figure it is depicted that Punjab and Sind bank, Indian bank,

corporation bank and Andhra bank have kept strict control on their NPA’S

and their total NPA for the five year period is lowest relative to others. The

bars of central bank, Indian overseas bank, UCO bank, united bank are

having highest level of bars which shows their higher level of NPA’s

relative to other banks. The net nonperforming assets and descriptive

statistics and ranks of individual banks is given in table 3.13

112

Table 3.13

Net Nonperforming assets and descriptive statistics and Ranks of individual banks

BANK/YEAR 2008 2009 2010 2011 2012 MEAN SD CAGR RANK

Allahabad Bank 0.8 0.72 0.66 0.79 0.98 0.79 0.12 4.14 7

Andhra Bank 0.15 0.18 0.17 0.38 0.91 0.36 0.32 43.41 1

Bank of Baroda 0.47 0.31 0.34 0.35 0.54 0.4 0.1 2.82 2

Bank of India 0.52 0.44 1.31 0.91 1.47 0.93 0.46 23.1 9

Bank of Maharashtra 0.87 0.79 1.64 1.32 0.84 1.09 0.37 -0.7 11

Canara Bank 0.84 1.09 1.06 1.11 1.46 1.11 0.22 11.69 13

Central Bank of India 1.45 1.24 0.69 0.65 3.09 1.42 0.99 16.34 18

Corporation Bank 0.32 0.29 0.31 0.46 0.87 0.45 0.24 22.14 3

Dena Bank 0.94 1.09 1.21 1.22 1.01 1.09 0.12 1.45 11

IDBI Bank Limited 1.3 0.92 1.02 1.06 1.61 1.18 0.28 4.37 15

Indian Bank 0.24 0.18 0.23 0.53 1.33 0.5 0.48 40.84 4

Indian Overseas Bank 0.6 1.33 2.52 1.19 1.35 1.4 0.7 17.61 17

Oriental Bank of Commerce 0.99 0.65 0.87 0.98 2.21 1.14 0.61 17.42 14

Punjab & Sind Bank 0.37 0.32 0.36 0.56 1.19 0.56 0.36 26.32 5

Punjab National Bank 0.64 0.17 0.53 0.85 1.52 0.74 0.5 18.89 6

Syndicate Bank 0.97 0.77 1.07 0.97 0.96 0.95 0.11 -0.21 10

UCO Bank 1.98 1.18 1.17 1.84 1.96 1.63 0.42 -0.2 20

Union Bank of India 0.17 0.34 0.81 1.19 1.7 0.84 0.62 58.49 8

United Bank of India 1.1 1.48 1.84 1.42 1.72 1.51 0.29 9.35 19

Vijaya Bank 0.57 0.82 1.4 1.52 1.72 1.21 0.49 24.72 16

Source: RBI, CMIE.

Table 3.13 displays the net non performing assets ratio of nationalised banks.

This is the actual burden on the shoulders of bank and calculated by deducting

necessary provisions from the gross nonperforming assets of bank. From the analysis

of above table it is inferred that net NPA of nationalised banks is close vigilance and

control in most of the banks by maintaining sufficient level and of provisions to counter

balance the decrease in the quality of assets. The CAGR is varying in much range

compared to GNPA of nationalised banks, the bank of Maharashtra is having lowest

CAGR of -0.7 and union bank having highest CAGR of 58.49 percent. The ranking of

banks is done on the basis of mean for last five years and ranking is done in ascending

113

order i,e lower the average better the rank, Andhra bank, bank of Maharashtra,

corporation got first second and third rank respectively with their lowest mean for five

years and united bank of India and UCO bank 19th and 20th rank respectively.

The above table 3.13 shows the annual ratios of net NPA’s for five year term for

each nationalised bank and height of bars determine level of NNPA’s and division of

bars determine annual level of annual NNPA ratio. Andhra bank, bank of Baroda,

corporation bank, Indian bank and Punjab and Sind bank are positive in terms of net

NPA ratio as there level is minimum and rest having higher ratio with varying level of

bars and UCO banks displayed bar length is maximum.

114

Ranking of states

Table 7 shows the composite rank of each bank, this is arrived at by averaging

the ranks of banks as per GNPA and NNPA. This reason for this is that average

performance in each will determine the real performance in the management of

nonperforming assets. So final ranks assigned to banks is based on the average of

earlier two ranks. Table 3.14 gives the ranking of individual banks.

Table 3.14

Ranking of Nationalised Banks

BANK/ITEM RANKS AS

PER GNPAS

RANKS AS

PER NNPA AVERAGE

OVERALL

RANK

Allahabad Bank 7 7 7 5

Andhra Bank 4 1 2.5 1

Bank of Baroda 6 2 4 4

Bank of India 13 9 11 9

Bank of Maharashtra 16 11 13.5 12

Canara Bank 5 13 9 7

Central Bank of India 20 18 19 15

Corporation Bank 2 3 2.5 1

Dena Bank 9 11 10 8

IDBI Bank Limited 7 15 11 9

Indian Bank 3 4 3.5 3

Indian Overseas Bank 17 17 17 14

Oriental Bank of Commerce 10 14 12 10

Punjab & Sind Bank 1 5 3 2

Punjab National Bank 11 6 8.5 6

Syndicate Bank 15 10 12.5 11

UCO Bank 18 20 19 15

Union Bank of India 14 8 11 9

United Bank of India 19 19 19 15

Vijaya Bank 12 16 14 13

Source: RBI

115

It can be seen from the table 3.14 that Andhra bank and corporation bank has

got first rank followed by Punjab and Sind at second rank and Indian bank at third rank.

In the management of nonperforming assets some banks have got the same rank

which is clearly shown in the table, two banks have got first rank, three banks have got

ninth rank and another three banks have got 15th rank. These banks are at the same

performance level in the management of nonperforming assets.

Table 3.15

ANOVA

GNPA

Sum of Squares Df Mean Square F Table value at 5 level of

Sig. F(19,80)

Between Groups 37.595 19 1.979 6.516 1.718

Within Groups 24.295 80 .304

Total 61.890 99

Table 3.15 shows that calculated F value of 6.516 is which is very much higher

than table value or critical value of 1.718 at 5 % level of significance with degrees of

freedom ( v1=19 and v2=80) and hence our analysis supports our hypothesis that there

is significant difference of gross NPA ratios of nationalised banks. This shows that

nationalised banks are having different level of Gross NPA’s and which shows their

efficiency in management of gross NPAs, and quality of their assets.

116

Table 3.16 ANOVA

NNPA

Sum of Squares Df Mean Square F Table value at 5 level of Sig. F(19,80)

Between Groups 13.753 19 .724 3.583 1.718

Within Groups 16.163 80 .202

Total 29.915 99

Table 3.16 shows the ANOVA test of Net NPA to Net Advances of Nationalised

banks. It is seen from the table that calculated F statistics value of 3.583 is higher than

table value of 1.718 at 5 % level of significance. Results of our ANOVA analysis

support our hypothesis that there is significant difference between NNPA of

nationalised banks, which shows their varied performance of asset management.

Importance of Debt Recovery

Speedy debt recovery is importance for the following reasons:21

� A bank’s money can be termed ‘public money’. This is because, in case of Public

Sector banks, it is the Government’s money that runs the banks and the capital

infusion is done by the government. In case of Private Sector Banks, it is the

capital of the millions of investors that steers the bank. Moreover the funds of the

banks are intended to be served to the general public and for the commercial

initiatives that largely influences the people, who depends on it. When money is

trapped, a bank faces difficulty in funding projects, which it could earlier do.

� NPAs affects the profitability of the bank; hence debt recovery is made essential

to ensure that it functions smoothly.

� If the bank succumbs to a financial crisis, it will leave the employees,

117

management, and all the stakeholders in the dark.

� A large amount of NPA will tarnish the image of the bank, and can discourage

investors.

� ROI of the bank decreases, if the NPA is not recovered speedily.

� Cost of Capital (interest) gets stranded. It is the bank’s prime source of income.

Existing Legal Framework

Before Institution of the Debt Recovery Tribunal

The banks were in a predicament before the advent of the Debt Recovery

Tribunal. Debt recovery cases were like other civil cases and had to be filed in ordinary

civil courts. Court proceedings were dragged for long periods, at times more than 15

years. This took its toll on the financial health of the banks, as the chunk of the stressed

assets got snagged in the litigation. The bank found it very difficult to fund their further

advances. This grave situation led the economy into the trajectory of sluggish growth.

Industry found it tough to get credit to fund projects. The Government then appointed

the Narasimhan Committee which made a path-breaking recommendation to install

tribunals to deal with cases of debt recovery.

Recovery of Debts Due to Banks and Financial Institutions Act, 1993

The need for a comprehensive law on the recovery of debts was stressed by the

Tiwari Committee Report (1981) which stated:

118

“The civil courts are burdened with diverse types of cases. Recovery of dues due to banks and financial institutions is not given any priority by the civil courts. The banks and financial institutions like any other litigants have to go through a process of pursuing the cases for recovery through civil courts for unduly long period”. 22

The Tiwari Committee Report was endorsed by the Narasimhan Committee in

1991.Conforming to the recommendations of Narasimhan Committee; the Government

in 1993 enacted the avant-garde legislation of Recovery of Debts to Banks and

Financial Institutions Act (Popularly known as the RDB Act). The functions of the Debt

Recovery Tribunal were governed by the RDB Act. It has to be noted that the Tribunal

was set up by an Act of Parliament, which is empowered to do so according to the

Article 247 of the Constitution of India. The RDB Act revolutionised the way asset-

recovery cases were resolved in India. It has been challenged in various accounts. In

1995, the constitutionality of the DRT was challenged successfully before the Delhi

High Court, which held that the Tribunal could not function validly since it did not have

any provision for filing counterclaims. Subsequently, the RDB Act was amended and

the constitutionality of the amended act was upheld by the Supreme Court. As things

stand now, borrowers are entitled to file ‘counterclaims’ under S.19 of the RDB Act.23

What is a Debt Recovery Tribunal

The Tribunal was set up in 1993, as a result of the Recovery of Debts Due to

Banks and Financial Institutions Act. It was established to facilitate speedy adjudication

of the cases and swift execution of verdicts. These tribunals are the quasi-judicial

institutions set up to process the legal suits filed by banks against defaulting borrowers.

By March 31, 2003, they had disposed claims worth Rs 314 billion and recovered Rs 79

119

billion (Articlesbase, 2010). Recovery of dues to the banks had become a serious

problem as large sums of public money were blocked because of defaulting borrowers.

Such tribunals are supposed to exercise their jurisdiction, power and the authority

conferred on them as provided under Chapter III of the Act. Limitations as given under

the Limitations Act will apply also to the DRT.

According to Section 18 of the Act, no other court except the High Court and

Supreme Court (exercising jurisdiction under Article 226 and Article 227 of the

Constitution of India) will have jurisdiction to adjudicate matters concerning recovery of

debts due to banks and financial institutions. However, the Tribunal can only take up

matters having a value more than '10 lakh. Appeals filed against the proceedings

initiated by secured creditors under the Securitisation and Reconstruction of Financial

Assets and Enforcement of Security Interest Act can also be taken up by the Debt

Recovery Tribunal.

The Central Government has notified 33 tribunals in the following regions.

Kolkata with three tribunals, Allahabad, Delhi with three tribunals, Jaipur, Bangalore,

Ahmadabad, Guwahati, Patna, Chennai with two tribunals, Mumbai with three tribunals,

Hyderabad, Jabalpur, Ernakulam, Chandigarh, Lucknow, Aurangabad, Nagpur,

Cuttack, Ranchi, Visakhapatnam and Coimbatore.

Aim of the Debt Recovery Tribunal

The main focus or aim of the Tribunal is to

• Avoid delay in the adjudication proceeding and expedite adjudication

proceedings

120

• To facilitate speedy recovery of assets

Constituents of a Debt Recovery Tribunal

A Debt Recovery Tribunal is headed by a Presiding Officer, who acts as the

Judge of the Tribunal. It also consists of a number of staff in the Registry. The Registry

is responsible for accepting applications and filing of cases with the DRT. The Registry

is headed by a Registrar. It is the Registrar’s mandate to perform the functions of a

Judicial Officer till the case is transferred to the Presiding Officer for the final hearing.

The Registrar is assisted by an Assistant Registrar. The Act also accounts for the post

of Recovery Officers who are to execute the decree.24

Securitisation and Reconstruction of Financial Assets and Enforcement of

Security Interest (SARFAESI) Act, 2002

It is the SARFAESI Act that brought a greater change in the debt recovery

scenario in the country. One of the important changes that SARFAESI has brought is

that it allowed the banks (according to Sec.13.4 SARFAESI) to take over possession

from the defaulter, without going through the stringent court procedure, once the loan

account has been categorised as a NonPerforming Asset.

The SARFAESI Act allows the Secured Creditor to sell or lease the secured

asset, or appoint a Receiver to take care of the asset which is classified as a NPA. The

bank can take the possession of the secured asset within 60 days of serving the notice

to the defaulter with the assistance of the Chief Judicial Magistrate. Under the

SARFAESI, if the loan account has been classified as a NPA, the authorised officer

from the bank can start the proceedings. The bank can demand the full loan amount be

121

repaid along with interest payments, even if the borrower has agreed to pay the

overdue amount. Rather than regularising the account, the bank seeks that the entire

amount be payable and the bank advances are always repayable on demand. But,

nothing can stop the bank from halting the proceedings and continuing with the loan

account if it has been regularised by the borrower by paying the over-due amount. The

SARFAESI Act is applicable for all the Scheduled Commercial Banks. However,

Cooperative Banks are not allowed to invoke their powers using SARFAESI after a

Supreme Court ruling.25

An Amendment was made to the Act, which entitled the borrower to make an

application of objection to the authorized officer of the bank before the 60 day notice

period allowed by the bank. Supreme Court in Mardia Chemicals Caseupheld the

Constitutional validity of SARFAESI Act but struck down Sec 17(2) of the Act which

provided for the deposit of 75 per cent of the claim before the appeal is admitted by the

Tribunal.

After the Supreme Court verdict, an amendment was made to the SARFAESI

Act. According to this amendment, the Secured Creditor may be able to take over the

possession of the property only if the reasons for non-acceptance of the objection

raised by the borrower are furnished to him. If an asset has been taken over by the

bank, then an application can be placed before the DRT without any deposits.

The Apex Court also held that the Secured Creditor hear the objection of the

defendant or borrower and the reasons for the non-acceptance of the objection be

communicated to the defendant.

On receipt of the application of objection, the bank has to reply back, within

122

seven days to the borrower/defaulter explaining why the charges mounted shall persist.

However, if the objection is rejected by the bank, the borrower/defaulter is free to

approach the High Court by invoking Article 227 of the Constitution. If the rejection to

the objection made by the bank is proper and satisfies the Writ Court, then the High

Court may reject the writ application. If the total due amount is not realised by the sale

of the secured asset, then the secured creditor is allowed to approach the Debt

Recovery Tribunal.26

Table No. 3.17 presents the data pertaining to the recovery of NPAs by SCBs

through various channels like Lok Adalats, DRTs and SARFAESI act.

Table-3.17 Amount recovered by SCBs through various channels

(Amount in Rs crores) Recovery

Channel

2009-10 2010-11

No of

cases

referred

Amount

involved

Amount

recovered

Col(4) as a %

of

Col(3)

No of

cases

referred

Amount

involved

Amount

recovered

Col(8) as a %

of

Col(7)

(1) (2) (3) (4) (5) (6) (7) (8) (9)

I.Lok Adalats II. DRTs III. SARFAESI

778833

6019

78366

7235

9797

14249

112

3133

4269

1.55

32.00

30.00

616018

12872

118642

5254

14092

30604

151

3930

11561

2.87

27.89

37.78

Total recovery channel

863218 31281 7514 24.02% 747532 49950 15642 31.31%

Source: Reserve Bank of India

As per table 3.17 all total recovery in 2011 is 31.31% which is higher than

recovery rate i.e. 24.02% in 2010. Most of the NPA recovered in 2010 through Debt-

Recovery Tribunal (DRT), while that of 2011 is recovered through “The Securitization

and Reconstruction of Financial Assets and Enforcement of Security Interest

(SARFAESI) ordinance 2002”

123

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10. Ibid, p.5.

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21. Narasimham, M., 1998. Report of the committee on Banking Sector

Reforms.

22. Bloem, A.M., & Goerter, C.N (2001), ‘The Macroeconomic Statistical

Treatment of Nonperforming loans’, Discussion Paper, Statistics Department

of the IMF, Decembere1, 2001.

23. Chakrabarti Anjan ,” Dynamics of emerging India's banking sector assets: A

simple model”, The Journal of Asset Management (2010)

24. Joshi Hemlata, (2005), “Net NPAs of Public Sector Banks”, Journal of Banking

and Finance, September.

25. Ibid, p.9.

26. Kaur Harpreet and Pasricha J. S., (2004) “Management of NPAs in Public Sector

Banks” Indian Journal of Commerce, Vol.57, No2.