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    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” Table of Contents Chapter - 1. INTRODUCTION TO TOPIC............................................................................... 2 What is an NPA? .............................................................................................................................................. 2 Chapter – 2. LITERATURE REVIEW ...................................................................................... 5 Chapter – 3. INTRODUCTION OF BANKING INDUSTRY .................................................. 8 History of Banking In India .......................................................................................................................... 8 Reserve Bank Of India (RBI).................................................................................................................... 11 Structure Of Indian Banking Industry.................................................................................................... 12 Aggregate Performance of the Banking Industry: ............................................................................. 18 Challenges facing by banking industry ................................................................................................. 20 Classification of Assets ............................................................................................................................... 23 Categories of NPAs ...................................................................................................................................... 23 Reporting Format For NPA – Gross And Net Npa ........................................................................... 25 Types Of Npa:................................................................................................................................................. 26 Impact Of Npa: ............................................................................................................................................... 26 Procedures for NPA Identification in India. ........................................................................................ 27 Chapter – 4. RESEARCH METHODOLOGY ..............................................................32 Scope of the study:- ...................................................................................................................................... 32 Research objective:- ..................................................................................................................................... 32 Methodology:- ................................................................................................................................................ 32 Tools and techniques: .................................................................................................................................. 32 Limitation ......................................................................................................................................................... 33 Tools and techniques: .................................................................................................................................. 33 Chapter – 5. DATA BASE AND METHODOLOGY .....................................................35 Hypothesis of the Study. ............................................................................................................................. 35 Chapter – 6. FINDING ............................................................................................................... 50 Chapter – 7. CONCLUSION ..................................................................................................... 51 Chapter – 8. REFERENCES ..................................................................................................... 52 S.K.Patel Institute of Management and Computer Studies (MBA) Page 1
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” Chapter - 1. INTRODUCTION TO TOPIC What is an NPA? An asset becomes non-performing when it ceases to generate income to the Bank. Thus, a non-performing asset (NPA) is defined as a credit facility in respect of which the interest and or instalments of principal has remained „overdue‟ for a „specified period‟ of time. The concept of „specified period‟ is reduced in a phased manner. The shortening of the period is from 4 quarters in 1993 when the concept of IRAC norms was first introduced in India to the present level of 90 days. Thus from 31.3.2004 an advance or loan (other than direct agricultural advance) shall be classified as an NPA where Interest and / or instalment of principal remain overdue for a period of more than 90 days in respect of a term loan. The account remains out of order in respect of an overdraft / cash credit for more than 90 days. The bills remain overdue for a period of more than 90 days in the case of bills purchased and discounted. Any amount to be received remains overdue for a period more than 90 days in respect of any other accounts. In case of direct agricultural advances, w.e.f. 30.9.2004, a loan granted for short duration crops will be treated as NPA, if the instalment of principal or interest thereon remains overdue for 2 crop seasons. In the case of long duration crops, the loan will be treated as NPA if the instalment of principal or interest thereon remains overdue for 1 crop season. Explanation of some terms used in NPA management Security Interest: Security Interest means right, title and interest of any kind whatsoever upon property, created in favour of any secured creditor and includes mortgage, charge, hypothecation and assignment S.K.Patel Institute of Management and Computer Studies (MBA) Page 2
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” Wilful defaulters: "A Wilful Default” would be deemed to have occurred if any of the following events is noted The unit has defaulted in meeting its payment / repayment obligations to the lender even when it has the capacity to honour the said obligations. The unit has defaulted in meeting its payment / repayment obligations to the lender and has not utilised the finance from the lender for the specific purposes for which finance was availed of but has diverted the funds for other purposes. The unit has defaulted in meeting its payment/repayment obligations to the lender and has siphoned off the funds so that the funds have not been utilised for the specific purpose for which finance was availed of, nor are the funds available with the unit in the form of other assets.” Factors contributing to NPAs: According to a recent study conducted by the RBI, the underlying reasons for NPAs in India can be classified into two heads, namely: 1. Internal Factors 2. External Factors Internal Factors: Diversion of funds for expansion/diversification/modernisation or for taking up new projects Diversion of funds for assisting or promoting associate concerns Time or cost overrun during the project implementation stage Business failures due to product failure, failure in marketing, etc Inefficiency in management Slackness in credit management & monitoring Inappropriate technology or problems related to modern technology S.K.Patel Institute of Management and Computer Studies (MBA) Page 3
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” External Factors: Recession in the economy as a whole Input or power shortage Price escalation of inputs Exchange rate fluctuation Accidents & natural calamities Changes in government policies relating to excise & import duties, pollution control orders, etc Government loan waiver scheme Other Factors: Apart from the above factors, there are certain other factors which are responsible for standard assets becoming NPAs. They are : Liberalisation of the economy & the consequent pressures from liberalisation like severe competition, reduction of tariffs, removal of restrictions Poor monitoring of credits & the failure to recognise early warning signals shown by standard assets Promoters‟ over-optimism in setting up large projects Sudden crashing of capital markets & the failure to raise adequate funds Granting of loans to certain sectors on the basis of the Government‟s directives rather than commercial imperatives Mismatch of funding i.e. using loans granted for short term for long term transactions High leveraging & high cost of borrowing S.K.Patel Institute of Management and Computer Studies (MBA) Page 4
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” Chapter – 2. LITERATURE REVIEW There is several research paper studies for carried out or find out the impact of NPA on profitability and liquidity in public sector banks. Dr. A. Shyamala (June -2012), “NPAs in Indian banking sector: impact on profitability” using secondary data for years 10 year, The data has been analyzed using ratio. Like Gross NPA to Gross Advances, Net NPA to Net Advances, Gross NPA to Total Assets, Net NPA to Total Assets and covered Area under study of SBI Group, Nationalized Banks Group and Private Banks Group and Shahbaz Haneef, Tabassum Riaz, Muhammad Ramzan, “Impact of Risk Management on Non-Performing Loans and Profitability of Banking Sector of Pakistan” (April 2012,)using secondary data for the years 10 year and covered Area under study 5 banks. Mahipal Singh Yadav, ( June, 2011) “Impact of Non Performing Assets on Profitability and Productvity of Public Sector Banks in India” has conclude that non-performing assets in public sector banks affects fifty percent profitability. Siraj K.K Prof. (Dr). P. Sudarsanan Pillai, (March|2012) “A Study on the Performance of Non-Performing Assets (NPAs) of Indian Banking During Post Millennium Period” has conclude that NPA remained as an area of concern as it indicates the real efficiency of credit risk management) Anshu bansal (January 15, 2012 “A study on recent trends in risk management of nonperforming assets (npas) by public sector banks in india” Types of data: Primary and secondary data years :2007-2011 Area under study: all Public Sector Banks in India. Scope: 30% banks as sample, based at Dehradun and nearby surrounding towns and cities The research work has been divided into three major steps, (1)namely: Theoretical study of NPAs; (2)Historical study of NPAs and (3)analyzing the recent trends of NPAs. (4)Mathematical and statistical tools such as percentage, trend analysis conclude that NPA shows the actual burden of banks. S.K.Patel Institute of Management and Computer Studies (MBA) Page 5
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” Dr.Hosmani ,Mr.Jagadish Hudagi (December 2011,) “Unearthing the epidemic of non-per forming assets -a study with reference to public sector banks in india” Types of data: secondary data years : 2005-2010. Area under study: Nonperforming assets in Commercial banks operating in India wise public sector banks has been taken in to account Scope: Indian banking sector for 5 year The study conducted on the topic unearthing the epidemic of non performing assets with reference to public sector banks in India, found that there is a slight improvement in the asset quality reflected by decline in the diverse NPA percentage. Neha Kalra, Shaveta Gupta ,Rajesh Bagga “Non-Performing Assets: A Brunt on Financial Performance of Banks” Types of data: secondary data years : (1998-2009 Area under study: public sector: private sector: foreign banks: Scope: Indian & foreign banking sector for 10 year The money locked up in NPAs is not available for productive use and adverse effect on banks' profitability is there) Dr. Dhirajjain Ms. Nasreen Sheikh (September 2012, ) “A comparative study of loan performance, npa and Net profit in selected indian private banks” Types of data: secondary years : 2001-2011. Area under study: Axis, ICICI Bank, IDBI Bank, HDFC Bank, Induslnd Bank, Kotak Mahindra Bank,Yes Bank,South Indian Bank, ING Vysya Bank, CITI Union Bank Scope: Indian banking sector for 10 year The overall performance shows that it is the moderately correlated. P.Malyadri2.S.Sirisha“Asset Quality and Non Performing Assets of Indian Commercial Banks” Types of data: secondary data years : 1996-2010, Area under study: NPA‟s of Indian Scheduled Commercial Banks. Scope: Indian banking sector for 14 year The asset quality of banks in India has been improving over the past few years as reflected in the declining NPA to advances ratio. Ms. Rajni Saluja, Dr. Roshan Lal (NOVEMBER-2007) “Comparative Analysis On Non‐Performing Assets NPAS Of Public Sector, Private Sector And Foreign Banks In India” Types of data: secondary data years: 2004‐2009 Area under study: public sector, private sector and foreign banks are selected Scope: Indian banking sector for 5 year It can be concluded that NPAs are not confined to PSBs alone but are present in private banks and foreign banks as well. There is more of NPAs in non‐priority sector than priority sector. S.K.Patel Institute of Management and Computer Studies (MBA) Page 6
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” Chandan Chatterjee Jeet Mukherjee 3.Dr. Ratan Das (November 2012,) Management Of Non Performing Assets - A Current Scenario” Types of data: secondary data years :20052011 Area under study: study of NPA‟ s of public sector banks, private sector banks and foreign sector banks Scope: Indian banking sector for 6 year The NPAs have a negative influence on the achievement of capital adequacy level, funds mobilization and deployment policy, banking system credibility, productivity and overall economy. S.K.Patel Institute of Management and Computer Studies (MBA) Page 7
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” Chapter – 3. INTRODUCTION OF BANKING INDUSTRY Definition of Bank “An organization, usually a corporation, chartered by a state or federal government, which does most or all of the following: receives demand deposits and time deposits, honors instruments drawn on them, and pays interest on them; discounts notes, makes loans, and invests in securities; collects checks, drafts, and notes; certifies depositor's checks; and issues drafts and cashier's checks.” Definition of banking In general terms, “The business activity of accepting and safeguarding money owned by other individuals and entities, and then lending out this money in order to earn a profit” So we can say that Banking is a company, which transacts the business of banking. The Banking Regulations Acts defines the business as banking by stating the essential function of a banker. The term banking is defined as “Accepting for the purpose of leading or investment, deposits of money from the public, repayable on demand or otherwise and withdrawal by cheque, draft, order or otherwise.” History of Banking In India Without a sound and effective banking system in India it cannot have a healthy economy. The banking system of India should not only be hassle free but it should be able to meet new challenges posed by the technology and any other external and internal factors. For the past three decades India's banking system has several outstanding achievements to its credit. The most striking is its extensive reach. It is no longer confined to only metropolitans or cosmopolitans in India. In fact, Indian banking system has reached even to the remote corners of the country. This is one of the main reasons of India's growth process. The government's regular policy for Indian bank since 1969 has paid rich dividends with the nationalization of 14 major private banks of India. Not long ago, an account holder had to wait for hours at the bank counters for getting a draft or for withdrawing his own money. S.K.Patel Institute of Management and Computer Studies (MBA) Page 8
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” Today, he has a choice. Gone are days when the most efficient bank transferred money from one branch to other in two days. Now it is simple as instant messaging or dials a pizza. Money has become the order of the day. The first bank in India, though conservative, was established in 1786. From 1786 till today, the journey of Indian Banking System can be segregated into three distinct phases. They are as mentioned below: PHASE I The General Bank of India was set up in the year 1786. Next were Bank of Hindustan and Bengal Bank. The East India Company established Bank of Bengal (1809), Bank of Bombay (1840) and Bank of Madras (1843) as independent units and called it Presidency Banks. These three banks were amalgamated in 1920 and Imperial Bank of India was established which started as private shareholders banks, mostly Europeans shareholders. In 1865 Allahabad Bank was established and first time exclusively by Indians, Punjab National Bank Ltd. was set up in 1894 with headquarters at Lahore. Between 1906 and 1913, Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and Bank of Mysore were set up. Reserve Bank of India came in 1935. During the first phase the growth was very slow and banks also experienced periodic failures between 1913 and 1948. There were approximately 1100 banks, mostly small. To streamline the functioning and activities of commercial banks, the Government of India came up with The Banking Companies Act, 1949 which was later changed to Banking Regulation Act 1949 as per amending Act of 1965 (Act No. 23 of 1965). PHASE II Government took major steps in this Indian Banking Sector Reform after independence. In 1955, it nationalized Imperial Bank of India with extensive banking facilities on a large scale especially in rural and semi-urban areas. It formed State Bank of India to act as the principal agent of RBI and to handle banking transactions of the Union and State Governments all over the country. Seven banks forming subsidiary of State Bank of India was nationalized in 1960 on 19th July, 1969, major process of nationalization was carried out. It was the effort of the then City S.K.Patel Institute of Management and Computer Studies (MBA) Page 9
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” Minister of India, Mrs. Indira Gandhi. 14 major commercial banks in the country were nationalized. Second phase of nationalization Indian Banking Sector Reform was carried out in 1980 with seven more banks. This step brought 80% of the banking segment in India under Government ownership. The following are the steps taken by the Government of India to Regulate Banking Institutions in the Country: ©. 1949: Enactment of Banking Regulation Act. ©. 1955: Nationalization of State Bank of India. ©. 1959: Nationalization of SBI subsidiaries. ©. 1961: Insurance cover extended to deposits. ©. 1969: Nationalization of 14 major banks. ©. 1971: Creation of credit guarantee corporation. ©. 1975: Creation of regional rural banks. ©. 1980: Nationalization of seven banks with deposits over 200 crore. Banking in the sunshine of Government ownership gave the public implicit faith and immense confidence about the sustainability of these institutions. PHASE III This phase has introduced many more products and facilities in the banking sector in its reforms measure. In 1991, under the chairmanship of M Narasimham, a committee was set up by his name which worked for the liberalization of banking practices. The country is flooded with foreign banks and their ATM stations. Efforts are being put to give a satisfactory service to customers. Phone banking and net banking is introduced. The entire system became more convenient and swift. Time is given more importance than money. The financial system of India has shown a great deal of resilience. It is sheltered from S.K.Patel Institute of Management and Computer Studies (MBA) Page 10
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” any crisis triggered by any external macroeconomics shock as other East Asian Countries suffered. Reserve Bank Of India (RBI) The central bank of the country is the Reserve Bank of India (RBI). It was established in April 1935 with a share capital of Rs. 5 crores on the basis of the recommendations of the Hilton Young Commission. The share capital was divided into shares of Rs. 100 each fully paid which was entirely owned by private shareholders in the beginning. The Government held shares of nominal value of Rs. 2, 20,000Reserve Bank of India was nationalized in the year 1949. The general superintendence and direction of the Bank is entrusted to Central Board of Directors of 20 members, the Governor and four Deputy Governors, one Government official from the Ministry of Finance, ten nominated Directors by the Government to give representation to important elements in the economic life of the country, and four nominated Directors by the Central Government to represent the four local Boards with the headquarters at Mumbai, Kolkata, Chennai and New Delhi. Local Boards consist of five members each Central Government appointed for a term of four years to represent territorial and economic interests and the interests of co-operative and indigenous banks. The Reserve Bank of India Act, 1934 was commenced on April 1, 1935. The Act, 1934 (II of 1934) provides the statutory basis of the functioning of the Bank. The Bank was constituted for the need of following: To regulate the issue of banknotes to maintain reserves with a view to securing monetary stability and To operate the credit and currency system of the country to it S.K.Patel Institute of Management and Computer Studies (MBA) Page 11
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” Structure Of Indian Banking Industry Banking Industry in India functions under the sunshade of Reserve Bank of India - the regulatory, central bank. Banking Industry mainly consists of: • Commercial Banks • Co-operative Banks The commercial banking structure in India consists of: Scheduled Commercial Banks Unscheduled Bank. Scheduled commercial Banks constitute those banks which have been included in the Second Schedule of Reserve Bank of India (RBI) Act, 1934. RBI in turn includes only those banks in this schedule which satisfy the criteria laid down vide section 42 (60) of the Act. Some co-operative banks are scheduled commercial banks although not all co-operative banks are. Being a part of the second schedule confers some benefits to the bank in terms of access to accommodation by RBI during the times of liquidity constraints. At the same time, however, this status also subjects the bank certain conditions and obligation towards the reserve regulations of RBI. For the purpose of assessment of performance of banks, the Reserve Bank of India categorize them as public sector banks, old private sector banks, new private sector banks and foreign banks. S.K.Patel Institute of Management and Computer Studies (MBA) Page 12
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” Sr.No. 1 2 3 4 5 Nationalized Banks Allahabad Bank Ltd. Andhra Bank Ltd. Old Private Sector Banks Bank 8 Ltd. Bank Ltd. Express Bank Bank Ltd. Bank of India Ltd. Federal Bank Ltd Bank of ING Vysya Bank Maharashtra Ltd. Ltd. Kashmir Central Bank of Karnataka Bank India Ltd. Ltd. Corporation Bank Karur Vysya Bank Ltd. Ltd. 10 IDBI Bank Ltd. 11 Indian Bank Ltd. Bank American Ltd. Dena Bank Ltd. Commercial Development Credit Dhanalakshmi 9 Axis Bank Ltd. City Union Bank Bank Ltd. 7 Foreign Banks Abu Dhabi Ltd. Bank of Baroda Canara Bank Ltd. Banks Catholic Syrian Jammu and 6 New Private Sector Lakshmi Vilas Bank Ltd. Nainital Bank Ltd. Ratnakar Bank Ltd. Bank HDFC Bank Ltd. Internasional Indonesia ICICI Bank Ltd. IndusInd Bank Ltd. Kotak Mahindram Bank Ltd. Yes Bank Ltd. - Bank of America NA Bank of Ceylon Bank of Nova Scotia (Scotia Bank) Bank of Tokyo Mitsubishi UFJ Barclays Bank PLC - BNP Paribas - Calyon Bank Chinatrust - S.K.Patel Institute of Management and Computer Studies (MBA) Commercial Bank Page 13
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” 12 13 14 15 16 17 18 19 20 Indian Overseas Bank Ltd. SBI Commercial and International South Indian Bank Commerce Ltd. Ltd. Bank Ltd. Punjab National Bank Ltd. Syndicate Bank Ltd. UCO Bank Ltd. Union Bank of IndiaLtd. United Bank of India Ltd. Vijaya Bank Ltd. Citibank N.A. - DBS Bank Bank Ltd. Oriental Bank of Punjab and Sind - Tamilnad Mercantile - Bank Ltd. Deutsche Bank AG - - HSBC - - - - - - - - - - - - Shinhan Bank - - Société Générale - - Sonali Bank - - - - JPMorgan Chase Bank Krung Thai Bank Mashreq Bank psc Mizuho Corporate Bank Royal Bank of Scotland State Bank of 21 Bikaner and Jaipur Ltd. 22 23 24 25 State Bank of Hyderabad Ltd. State Bank of India Ltd. State Bank of Mysore Ltd. State Bank of Patiyala Ltd. S.K.Patel Institute of Management and Computer Studies (MBA) Standard Chartered Bank State Bank of Mauritius Page 14
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” 26 27 State Bank of - - UBS - Travankore - VTB Industry scenario of Indian Banking Industry: The growth in the Indian Banking Industry has been more qualitative than quantitative and it is expected to remain the same in the coming years. Based on the projections made in the "India Vision 2020" prepared by the Planning Commission and the Draft 10th Plan, the report forecasts that the pace of expansion in the balance-sheets of banks is likely to decelerate. The total assets of all scheduled commercial banks by end-March 2010 is estimated at Rs 40,90,000 crores. That will comprise about 65 per cent of GDP at current market prices as compared to 67 per cent in 2002-03. Bank assets are expected to grow at an annual composite rate of 13.4 per cent during the rest of the decade as against the growth rate of 16.7 per cent that existed between 1994-95 and 2002-03. It is expected that there will be large additions to the capital base and reserves on the liability side. The Indian Banking industry, which is governed by the Banking Regulation Act of India, 1949 can be broadly classified into two major categories, nonscheduled banks and scheduled banks. Scheduled banks comprise commercial banks and the co-operative banks. In terms of ownership, commercial banks can be further grouped into nationalized banks, the State Bank of India and its group banks, regional rural banks and private sector banks (the old/ new domestic and foreign). These banks have over 67,000 branches spread across the country. The Public Sector Banks(PSBs), which are the base of the Banking sector in India account for more than 78 per cent of the total banking industry assets. Unfortunately they are burdened with excessive Non Performing assets (NPAs), massive manpower and lack of modern technology. On the other hand the Private Sector Banks are making tremendous progress. They are leaders in Internet banking, mobile banking, phone banking, ATMs. As far as foreign banks are concerned they are likely to succeed in the Indian Banking Industry. In the Indian Banking Industry some of the Private Sector Banks operating are IDBI Bank, ING Vyasa Bank, SBI Commercial and International Bank Ltd, Bank of Rajasthan Ltd. and banks from the Public Sector include Punjab National bank, Vijaya Bank, UCO Bank, Oriental S.K.Patel Institute of Management and Computer Studies (MBA) Page 15
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” Bank, Allahabad Bank among others. ANZ Grindlays Bank, ABN-AMRO Bank, American Express Bank Ltd, Citibank are some of the foreign banks operating in the Indian Banking Industry. As far as the present scenario is concerned the Banking Industry in India is going through a transitional phase. The first phase of financial reforms resulted in the nationalization of 14 major banks in 1969 and resulted in a shift from Class banking to Mass banking. This in turn resulted in a significant growth in the geographical coverage of banks. Every bank had to earmark a minimum percentage of their loan portfolio to sectors identified as “priority sectors”. The manufacturing sector also grew during the 1970s in protected environs and the banking sector was a critical source. The next wave of reforms saw the nationalization of 6 more commercial banks in 1980. Since then the number of scheduled commercial banks increased four-fold and the number of bank branches increased eight-fold. After the second phase of financial sector reforms and liberalization of the sector in the early nineties, the Public Sector Banks (PSB) s found it extremely difficult to compete with the new private sector banks and the foreign banks. The new private sector banks first made their appearance after the guidelines permitting them were issued in January 1993. Eight new private sector banks are presently in operation. These banks due to their late start have access to state-of-the-art technology, which in turn helps them to save on manpower costs and provide better services. During the year 2000, the State Bank Of India (SBI) and its 7 associates accounted for a 25 percent share in deposits and 28.1 percent share in credit. The 20 nationalized banks accounted for 53.2 percent of the deposits and 47.5 percent of credit during the same period. The share of foreign banks (numbering 42), regional rural banks and other scheduled commercial banks accounted for 5.7 percent, 3.9 percent and 12.2 percent respectively in deposits and 8.41 percent, 3.14 percent and 12.85 percent respectively in credit during the year 2000. S.K.Patel Institute of Management and Computer Studies (MBA) Page 16
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” Current Scenario: The industry is currently in a transition phase. On the one hand, the PSBs, which are the mainstay of the Indian Banking system are in the process of shedding their flab in terms of excessive manpower, excessive non Performing Assets (Npas) and excessive governmental equity, while on the other hand the private sector banks are consolidating themselves through mergers and acquisitions. PSBs, which currently account for more than 78 percent of total banking industry assets are saddled with NPAs (a mind-boggling Rs 830 billion in 2000), falling revenues from traditional sources, lack of modern technology and a massive workforce while the new private sector banks are forging ahead and rewriting the traditional banking business model by way of their sheer innovation and service. The PSBs are of course currently working out challenging strategies even as 20 percent of their massive employee strength has dwindled in the wake of the successful Voluntary Retirement Schemes (VRS) schemes. The private players however cannot match the PSB‟ s great reach, great size and access to low cost deposits. Therefore one of the means for them to combat the PSBs has been through the merger and acquisition (M& A) route. Over the last two years, the industry has witnessed several such instances. For instance, HDFC BANK‟ s merger with Times Bank ICICI BANK‟ s acquisition of ITC Classic, Anagram Finance and Bank of Madura. Centurion Bank, Indusind Bank, Bank of Punjab, Vysya Bank are said to be on the lookout. The UTI bank- Global Trust Bank merger however opened a pandora‟ s box and brought about the realization that all was not well in the functioning of many of the private sector banks. Private sector Banks have pioneered internet banking, phone banking, anywhere banking, mobile banking, debit cards, Automatic Teller Machines (ATMs) and combined various other services and integrated them into the mainstream banking arena, while the PSBs are still grappling with disgruntled employees in the aftermath of successful VRS schemes. Also, following India‟ s commitment to the W To agreement in respect of the services sector, foreign banks, including both new and the existing ones, have been permitted to open up to 12 branches a year with effect from 1998-99 as against the earlier stipulation of 8 branches. S.K.Patel Institute of Management and Computer Studies (MBA) Page 17
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” Talks of government diluting their equity from 51 percent to 33 percent in November 2000 have also opened up a new opportunity for the takeover of even the PSBs. The FDI rules being more rationalized in Q1FY02 may also pave the way for foreign banks taking the M& A route to acquire willing Indian partners. Meanwhile the economic and corporate sector slowdown has led to an increasing number of banks focusing on the retail segment. Many of them are also entering the new vistas of Insurance. Banks with their phenomenal reach and a regular interface with the retail investor are the best placed to enter into the insurance sector. Banks in India have been allowed to provide fee-based insurance services without risk participation, invest in an insurance company for providing infrastructure and services support and set up of a separate jointventure insurance company with risk participation. Aggregate Performance of the Banking Industry: Aggregate deposits of scheduled commercial banks increased at a compounded annual average growth rate (Cagr) of 17.8 percent during 1969-99, while bank credit expanded at a Cagr of 16.3 percent per annum. Banks‟ investments in government and other approved securities recorded a Cagr of 18.8 percent per annum during the same period. In FY01 the economic slowdown resulted in a Gross Domestic Product (GDP) growth of only 6.0 percent as against the previous year‟ s 6.4 percent. The WPI Index (a measure of inflation) increased by 7.1 percent as against 3.3 percent in FY00. Similarly, money supply (M3) grew by around 16.2 percent as against 14.6 percent a year ago. The growth in aggregate deposits of the scheduled commercial banks at 15.4 percent in FY01 percent was lower than that of 19.3 percent in the previous year, while the growth in credit by SCBs slowed down to 15.6 percent in FY01 against 23 percent a year ago. The industrial slowdown also affected the earnings of listed banks. The net profits of 20 listed banks dropped by 34.43 percent in the quarter ended March 2001. Net profits grew by 40.75 percent in the first quarter of 2000-2001, but dropped to 4.56 percent in the fourth quarter of 2000-2001. On the Capital Adequacy Ratio (CAR) front while most banks managed to fulfill the norms, it was a feat achieved with its own share of difficulties. The CAR, which at present is 9.0 percent, is likely to be hiked to 12.0 percent by the year 2004 based on the Basle Committee recommendations. Any bank that wishes to grow its assets needs to also S.K.Patel Institute of Management and Computer Studies (MBA) Page 18
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” shore up its capital at the same time so that its capital as a percentage of the risk-weighted assets is maintained at the stipulated rate. While the IPO route was a much-fancied one in the early „90s, the current scenario doesn‟ t look too attractive for bank majors. Consequently, banks have been forced to explore other avenues to shore up their capital base. While some are wooing foreign partners to add to the capital others are employing the M& A route. Many are also going in for right issues at prices considerably lower than the market prices to woo the investors. Interest Rate Scene: The two years, post the East Asian crises in 1997-98 saw a climb in the global interest rates. It was only in the latter half of FY01 that the US Fed cut interest rates. India has however remained more or less insulated. The past 2 years in our country was characterized by a mounting intention of the Reserve Bank Of India (RBI) to steadily reduce interest rates resulting in a narrowing differential between global and domestic rates. The RBI has been affecting bank rate and CRR cuts at regular intervals to improve liquidity and reduce rates. The only exception was in July 2000 when the RBI increased the Cash Reserve Ratio (CRR) to stem the fall in the rupee against the dollar. The steady fall in the interest rates resulted in squeezed margins for the banks in general. Governmental Policy: After the first phase and second phase of financial reforms, in the 1980s commercial banks began to function in a highly regulated environment, with administered interest rate structure, quantitative restrictions on credit flows, high reserve requirements and reservation of a significant proportion of lendable resources for the priority and the government sectors. The restrictive regulatory norms led to the credit rationing for the private sector and the interest rate controls led to the unproductive use of credit and low levels of investment and growth. The resultant „financial repression‟ led to decline in productivity and efficiency and erosion of profitability of the banking sector in general. This was when the need to develop a sound commercial banking system was felt. This was worked out mainly with the help of the recommendations of the Committee on the Financial System (Chairman: Shri M. Narasimham), 1991. The resultant financial sector reforms called for interest rate flexibility for banks, reduction in reserve requirements, and a number of structural measures. Interest rates have thus been steadily deregulated in the past few years S.K.Patel Institute of Management and Computer Studies (MBA) Page 19
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” with banks being free to fix their Prime Lending Rates(PLRs) and deposit rates for most banking products. Credit market reforms included introduction of new instruments of credit, changes in the credit delivery system and integration of functional roles of diverse players, such as, banks, financial institutions and non-banking financial companies (Nbfcs). Domestic Private Sector Banks were allowed to be set up, PSBs were allowed to access the markets to shore up their Cars. Challenges facing by banking industry The banking industry in India is undergoing a major transformation due to changes in economic condition and continuous deregulation. These multiple changes happening one after other has a ripple effect on a bank trying to graduate from completely regulated sellers market to completed deregulated customers market. Deregulation This continuous deregulation has made the banking market extremely competitive with greater autonomy, operational flexibility, and decontrolled interest rate and liberalized norms for foreign exchange. The deregulation of the industry coupled with decontrol in interest rates has led to entry of a number of players in the banking industry. At the same time reduced corporate credit off thanks to sluggish economy has resulted in large number of competitors battling for the same pie New Rules: As a result, the market place has been redefined with new rules of the game. Banks are transforming to universal banking, adding new channels with lucrative pricing and freebees to offer. Natural fall out of this new players, new channels squeezed spreads, demanding customers better service, marketing skills heightened competition, new rules of the game pressure on efficiency missed opportunities. Need for new orientation diffused customer loyalty. Bank has led to a series of innovative product offerings catering to various customer segments, specifically retail credit S.K.Patel Institute of Management and Computer Studies (MBA) Page 20
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” Efficiency: This in turn has made it necessary to look for efficiencies in the business. Bank need to access low cost funds and simultaneously improve the efficiency. The banks are facing pricing pressure, squeeze on spread and have to give thrust on retail assets. Diffused customer loyalty: This will definitely impact customer preferences, as they are bound to react to the value added offerings. Customers have become demanding and the loyalties are diffused. These are multiple choices; the wallet share is reduced per bank with demand on flexibility and customization. Given the relatively low switching costs; customer retention calls for customized service and hassle free, flawless service delivery. Misaligned mindset: These changes are creating challenges, as employees are made to adapt to changing conditions. There is resistance to change from employees and the seller market mindset is yet to be changed coupled with fear of uncertainty and control orientation. Acceptance of technology in but the utilization is not maximized. Competency gap: Placing the right skill at the right place will determine success. The competency gap needs to be addressed simultaneously otherwise there will be missed opportunities. The focus of people will be doing work but not providing solutions, on escalating problems rather than solving them and on disposing customers instead of using the opportunity to cross sell. Strategic Options with Banks to Cope With the Challenges: Leading players in the industry have embarked on a series of strategic and tactical initiatives to sustain leadership. The major initiatives include: Investing in state of the start of the art technology as the back bone of to ensure reliable service delivery. Leveraging the branch network and sales structure to mobilize low cost current and savings deposits. S.K.Patel Institute of Management and Computer Studies (MBA) Page 21
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” Making aggressive forays in the retail advances segments of home and personal loans. Implementing organization wide initiatives involving people, process and technology to reduce the fixed costs and the cost per transaction. Focusing on fee based income to compensate foe squeezed spread. Innovating products to capture customer „mind share‟ to begin with and later the wallet share. Improving the asset quality as Basel II norms. S.K.Patel Institute of Management and Computer Studies (MBA) Page 22
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” Classification of Assets Standard Assets: The standard assets consist of assets which are totally regular, safe and conducted as per norms of sanction. However, during the operations of such accounts, some of them, at times, show signs of deviations, sickness, out of order position wherein they became irregular. When such irregularities are noticed, they are classified as „Watch Category” assets with Code No. 12 but continues to be a part of “Standard Asset”. These accounts need higher level of monitoring and have to be regularised before these irregularities continue for more than 90 days. Provision requirement for a standard asset (including Watch Category asset) is given below: Categories of NPAs Banks are required to classify NPAs further into following categories, based on the period for which asset has remained non-performing and realisability of dues.  Sub-standard Asset  Doubtful Asset  Loss Asset Substandard Assets: With effect from 31st March 2005, substandard asset is one which has remained NPA for a period less than or equal to 12 months. Its Asset Code is 20. The provision requirement in substandard asset was earlier flat 10% of the outstanding dues, irrespective of the category of the advance (secured or clean). Now RBI has removed the CAP on the unsecured exposures and individual Bank Boards were given the freedom to formulate their own policy guidelines for prudential norms on unsecured exposures. Simultaneous with this liberalisation, RBI has made norms of provision requirement on unsecured exposure of Banks more stringent. Unsecured exposure is defined as an exposure where the realisable value of security as stipulated and ascertained by the valuation is not more than 10% `ab initio‟. That means all clean / unsecured advances when they become NPA as substandard asset, will now (w.e.f. 31.3.2005) require a provision at 20% of the outstanding S.K.Patel Institute of Management and Computer Studies (MBA) Page 23
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” Balances. As against this, the normal secured advances, when moving to NPA as substandard asset will require 10% of the outstanding balance as provision (no change from existing system). Thus from 31.3.2005 onwards the substandard asset will have 2 segments with different provision requirement as below:(a) Substandard – secured assets – Code 21 – provision at 20% of outstanding dues (b) Substandard – unsecured assets – Code 22 – provision at 20% of outstanding dues Doubtful Assets: It consists of 3 stages - Doubtful I, Doubtful II and Doubtful III. The provision requirement in each stage of Doubtful asset will be as under: Doubtful I (Code 31) - Assets remaining for a period of 12 months in Doubtful category – provision requirement shall be 20% of RVS + 100% of shortfall in security (i.e. NPAs over 12 months upto 24 months) Bank Group Year Standard Assets Amt % 523724 90.6 2002-03 610435 92.2 2003-04 830029 94.6 2004-05 1092607 96.2 2005-06 1425519 97.3 2006-07 1778476 97.8 2007-08 2237556 97.9 2008-09 2673534 97.8 2009-10 3272914 97.77 2010-11 3825500 97 2011-12 AVERAGE 1827029.4 95.92 18270294 TOTAL Sub-standard assets Doubtful assets Loss assets Total NPAs Amt % Amt % Amt % Amt % 14909 16909 11068 11453 14275 17290 26603 28791 34973 62300 23857.1 238571 2.6 2.6 1.3 1 1 1 0.9 1 1 1.6 1.4 32340 28756 30799 25028 19873 19291 21019 25383 33180 49000 28466.9 284669 5.6 4.3 3.5 2.2 1.4 1.1 0.9 0.9 0.99 1.2 2.21 6840 5876 5929 5636 4826 4018 4296 5750 6463 6000 5563.4 55634 1.2 0.9 0.7 0.5 0.3 2 0.1 0.2 0.19 0.2 0.63 52807 50149 45619 41378 38602 39739 44043 57301 71326 83772 52473.6 524736 9.4 7.8 5.4 3.7 2.7 2.2 2.2 2.1 2.1 2 4 S.K.Patel Institute of Management and Computer Studies (MBA) Page 24
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” Reporting Format For NPA – Gross And Net Npa Name of the Bank: Position as on……… PARTICULARS 1) Gross Advanced * 2) Gross NPA * 3) Gross NPA as %age of Gross Advanced 4) Total deduction( a+b+c+d ) ( a ) Balance in interest suspense a/c ** ( b ) DICGC/ECGC claims received and held pending adjustment ( c ) part payment received and kept in suspense a/c ( d ) Total provision held *** 5) Net advanced ( 1-4 ) 6) Net NPA ( 2-4 ) 7) Net NPA as a %age of Net Advance *excluding Technical write-off of Rs.________crore. **Banks which do not maintain an interest suspense a/c to park the accrued interest on NPAs may furnish the amount of interest receivable on NPAs. ***Excluding amount of Technical write-off (Rs.______crore) and provision on standard assets. (Rs._____crore). S.K.Patel Institute of Management and Computer Studies (MBA) Page 25
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” TYPES OF NPA: 1. Gross NPA 2. Net NPA Gross NPA: Gross NPAs are the sum total of all loan assets that are classified as NPAs as per RBI guidelines as on Balance Sheet date. Gross NPA reflects the quality of the loans made by banks. It consists of all the nonstandard assets like as sub-standard, doubtful, and loss assets. It can be calculated with the help of following ratio: Gross NPAs Ratio = Gross NPAs Gross Advances Net NPA: Net NPAs are those type of NPAs in which the bank has deducted the provision regarding NPAs. Net NPA shows the actual burden of banks. Since in India, bank balance sheets contain a huge amount of NPAs and the process of recovery and write off of loans is very time consuming, the provisions the banks have to make against the NPAs according to the central bank guidelines, are quite significant. That is why the difference between gross and net NPA is quite high. It can be calculated by following: Net NPAs = Gross NPAs – Provisions Gross Advances – Provisions IMPACT OF NPA: Profitability: NPA means booking of money in terms of bad asset, which occurred due to wrong choice of client. Because of the money getting blocked the prodigality of bank decreases not only by the amount of NPA but NPA lead to opportunity cost also as that much of profit invested in some return earning project/asset. So NPA doesn‟t affect current profit but also future stream of profit, which may lead to loss of some long-term beneficial opportunity. Another impact of reduction in profitability is low ROI (return on investment), which adversely affect current earning of bank. S.K.Patel Institute of Management and Computer Studies (MBA) Page 26
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” Liquidity: Money is getting blocked, decreased profit lead to lack of enough cash at hand which lead to borrowing money for shortest period of time which lead to additional cost to the company. Difficulty in operating the functions of bank is another cause of NPA due to lack of money Routine payments and dues. Involvement of management: Time and efforts of management is another indirect cost which bank has to bear due to NPA. Time and efforts of management in handling and managing NPA would have diverted to some fruitful activities, which would have given good returns. Now day‟s banks have special employees to deal and handle NPAs, which is additional cost to the bank. Credit loss: Bank is facing problem of NPA then it adversely affect the value of bank in terms of market credit. It will lose its goodwill and brand image and credit which have negative impact to the people who are putting their money in the banks Procedures for NPA Identification in India. Internal Checks and Control Since high level of NPAs dampens the performance of the banks identification of potential problem accounts and their close monitoring assumes importance. Though most banks have Early Warning Systems (EWS) for identification of potential NPAs, the actual processes followed, however, differ from bank to bank. These early warning signals used by banks are generally independent of risk rating systems and asset classification norms prescribed by RBI. The major components/processes of a EWS followed by banks in India as brought out by a study conducted by Reserve Bank of India at the instance of the Board of Financial Supervision are as follows: Designating Relationship Manager/ Credit Officer for monitoring account/s Preparation of `know your client' profile Credit rating system Identification of watch-list/special mention category accounts Monitoring of early warning signals S.K.Patel Institute of Management and Computer Studies (MBA) Page 27
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” Relationship Manager/Credit Officer The Relationship Manager/Credit Officer is an official who is expected to have complete knowledge of borrower, his business, his future plans, etc. The Relationship Manager has to keep in constant touch with the borrower and report all developments impacting borrowable account. As a part of this contact he is also expected to conduct scrutiny and activity inspections. In the credit monitoring process, the responsibility of monitoring a corporate account is vested with Relationship Manager/Credit Officer Know your client' profile (KYC) Most banks in India have a system of preparing `know your client' (KYC) profile/credit report. As a part of `KYC' system, visits are made on clients and their places of business/units. The frequency of such visits depends on the nature and needs of relationship. Credit Rating System The credit rating system is essentially one point indicator of an individual credit exposure and is used to identify measure and monitor the credit risk of individual proposal. At the whole bank level, credit rating system enables tracking the health of banks entire credit portfolio. Most banks in India have put in place the system of internal credit rating. While most of the banks have developed their own models, a few banks have adopted credit rating models designed by rating agencies. Credit rating models take into account various types of risks viz. financial, industry and management, etc. associated with a borrowable unit. The exercise is generally done at the time of sanction of new borrowable account and at the time of review renewal of existing credit facilities. Watch-list/Special Mention Category The grading of the bank's risk assets is an important internal control tool. It serves the need of the Management to identify and monitor potential risks of a loan asset. The purpose of identification of potential NPAs is to ensure that appropriate preventive / corrective steps could be initiated by the bank to protect against the loan asset becoming non-performing. Most of the banks have a system to put certain borrowable accounts under watch list or special mention category if performing advances operating under adverse business or economic conditions are exhibiting certain distress signals. S.K.Patel Institute of Management and Computer Studies (MBA) Page 28
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” Early Warning Signals It is important in any early warning system, to be sensitive to signals of credit deterioration. A host of early warning signals are used by different banks for identification of potential NPAs. Most banks in India have laid down a series of operational, financial, transactional indicators that could serve to identify emerging problems in credit exposures at an early stage. Further, it is revealed that the indicators which may trigger early warning system depend not only on default in payment of installment and interest but also other factors such as deterioration in operating and financial performance of the borrower, weakening industry characteristics, regulatory changes, general economic conditions, etc. Early warning signals can be classified into five broad categories viz. a) Financial b) Operational c) Banking d) Management and e) External factors Financial: Related warning signals generally emanate from the borrowers' balance sheet, income expenditure statement, statement of cash flows, statement of receivables etc. Following common warning signals are captured by some of the banks having relatively developed EWS. Financial warning signals Persistent irregularity in the account Default in repayment obligation Devolvement of LC/invocation of guarantees Deterioration in liquidity/working capital position Substantial increase in long term debts in relation to equity Declining sales Operating losses/net losses Rising sales and falling profits Disproportionate increase in overheads relative to sales S.K.Patel Institute of Management and Computer Studies (MBA) Page 29
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” Rising level of bad debt losses Operational warning signals Low activity level in plant Disorderly diversification/frequent changes in plan Nonpayment of wages/power bills Loss of critical customer/s Frequent labor problems Evidence of aged inventory/large level of inventory Management related warning signals Lack of co-operation from key personnel Change in management, ownership, or key personnel Desire to take undue risks Family disputes Poor financial controls Fudging of financial statements Diversion of funds Banking related signals Declining bank balances/declining operations in the account Opening of account with other bank Return of outward bills/dishonored cheques Sales transactions not routed through the account Frequent requests for loan Frequent delays in submitting stock statements, financial data, etc. Signals relating to external factors Economic recession Emergence of new competition Emergence of new technology Changes in government / regulatory policies Natural calamities S.K.Patel Institute of Management and Computer Studies (MBA) Page 30
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” Willful Defaulters RBI has issued revised guidelines in respect of detection of willful default and diversion and siphoning of funds. As per these guidelines a willful default occurs when a borrower defaults in meeting its obligations to the lender when it has capacity to honor the obligations or when funds have been utilized for purposes other than those for which finance was granted. The list of willful defaulters is required to be submitted to SEBI and RBI to prevent their access to capital markets. Sharing of information of this nature helps banks in their due diligence exercise and helps in avoiding financing unscrupulous elements. RBI has advised lenders to initiate legal measures including criminal actions, wherever required, and undertake a proactive approach in change in management, where appropriate. S.K.Patel Institute of Management and Computer Studies (MBA) Page 31
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” Chapter – 4. RESEARCH METHODOLOGY Scope of the study:This research report is based on historical data of public sector banks and the source for the data is Trends and progress report of banking industry from RBI website. For the analysis the main NET NPA and NET PROFIT are being taken etc. and area of research in banking industry very wide but my report is limited to these public sector banks only and time period of data is ten year it‟s to get probable output and on the basis of this forecasting can be done. Research objective:To analysis the impact of non-performing assets on profitability of Public sector banks. To evaluate the impact of non-performing assets on profitability with other variables. To examine the impact of non-performing assets on efficiency and Liquidity. To know the ratio of NPA and Advances of public sector banks Methodology:Types of data: secondary data Sampling unit: - All public sector banks Period of the study: 10 year (1/4/2002 to 31/3/2012) Data collection: journals, articles, internet, books Tools and techniques: Descriptive test Correlation analysis Regression analysis Jarque-Bera, Kurtosis, Skewness, Pairwise Granger Causality Tests, Johansen Cointegration Test, and Ratio of NPA and Advances. S.K.Patel Institute of Management and Computer Studies (MBA) Page 32
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” Limitation This project Report study only past 10 year data so the chances of relationship between variable me be wrong. We have taken assumption for find out liquidity result, the Net advances will return back as their perfect time period, so no outstanding amt remaining at end of the year. Report study only on public sector banks. Tools and techniques: Correlation Analysis: There can be both short-run and long-run relationships between financial time series. Correlation coefficients are used for examining short-run co-movements and multicollinearity among the variables. If correlation coefficient is greater than 0.8, it indicates that multi collinearity exists. The population correlation coefficient, p, (-1 ≤ p ≤ 1) measures the degree of linear association between two variables. Co-integration Test: Johansen's cointegration test (Johansen and Juselius, 1990) has been applied to check whether the long run equilibrium relationship exists between the variables. The Johansen approach to cointegration test is based on two test statistics, viz., trace statistic, and maximum eigenvalue statistic. The trace statistic can be specified as: Trace (r, k) = - T∑ ln (1-λi) (1) Where λi is the i th largest eigenvalue of matrix Π and T is the number of observations. In the trace test, the null hypothesis is that the number of distinct cointegrating vector(s) is less than or equal to the number of cointegration relations (r). From the above, it is clear that λ trace equals Zero when all λ= 0. The maximum eigenvalue test examines the null hypothesis of exactly r cointegrating relations against the alternative of r + 1 cointegrating relations with the test statistic: λ max (r, r+1) = -T ln (1- λr+1) S.K.Patel Institute of Management and Computer Studies (MBA) (2) Page 33
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” Granger Causality test: At the end, the Granger Causality test (Engle and Granger, 1987) has been used to find out the direction of causality between the variables. To test for Granger Causality, the following bivariate regression model can be used: m n yt = α0 + ∑ αiYt-1 + ∑ βjXt-1 + εt i=1 (3) j=1 m n xt = ω0 + ∑ γiYt-1 + ∑ θjXt-1 + εt i=1 (4) j=1 The null hypothesis is H0: ∑ βj = 0 in the first regression equation of y i.e. lagged X terms do not belong in the regression means X does not cause y. If all the coefficients of x in the first regression equation of y, i.e. βj for j = 1...... are significant, then the null hypothesis that x does not cause y is rejected. S.K.Patel Institute of Management and Computer Studies (MBA) Page 34
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” Chapter – 5. DATA BASE AND METHODOLOGY Hypothesis of the Study. Ho= There is no significant association between gross NPAs to gross advances of the public sector banks. Ho= There is no significant association between priority sector, non priority sector, public sector & from NPAs point of view. Ho= There is no significant reduction in the portion of gross NPAs to gross advances. Ho= There is no significant relation between Net NPA and NET PROFIT. S.K.Patel Institute of Management and Computer Studies (MBA) Page 35
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” (1) To analysis the impact of Non-performing assets on profitability of Public sector banks. Table-1: Net Npa to Net Profit of Public Sector Banks. (Amount in Crores) Year Net NPA Net Profit 2002-03 24877 12295 2003-04 19335 16546 2004-05 16904 15784 2005-06 14566 16539 2006-07 14145 20152 2007-08 17726 26592 2008-09 21033 34394 2009-10 29644 57109 2010-11 36071 70331 2011-12 39423 81700 (Source: Report On Trend And Progress of Banking In India from 2003 to 2012) Table No-1.1 : Descriptive Statistics Mean Median Std. Dev. Skewness Kurtosis Jarque-Bera Probability NET NPA 23472.30 20184.00 8826.273 0.758552 2.151510 1.258974 0.532865 NET PROFIT 35144.20 23372.00 25332.07 0.857480 2.150133 1.526400 0.466172 Analysis: Jarque-Bera: From the Data it is clear that Probability is more than 0.05 that‟s shows that data follow the normality in the past 10 year in NPA & PROFIT. The probability is respectively 0.532 & 0.4466 that‟s show normally distributed. Kurtosis: From the result it is clear that data follow the Platykurtic. The standard is less than 3 then data follow Platykurtic, if more than 3 then data follow the Leptokurtic. Here both variable NPA & PROFIT result is 2.1589 &2.1501 respectively. S.K.Patel Institute of Management and Computer Studies (MBA) Page 36
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” Skewness: The standard of the test is in negative or positive; here result shows positive in both the variable its show the normally distributed follow by data. Table No-1.2: Correlation Analysis: NET NPA 1 0.912 NET NPA NET PROFIT NET PROFIT 1 Analysis: Correlation result shows the positive correlation between NET NPA and NET PROFIT. Its show the one of the objective to know the impact of npa on profitability its clear in result that Correlation is 0.912 is more than 0.800, it indicate high correlation between them. Table No-1.3: Regression analysis. Variable Coefficient Std. Error t-Statistic Prob. C NET NPA -26288.31 2.617234 10378.30 0.416446 -2.533007 6.284688 0.0351 0.0002 R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood F-statistic Prob(F-statistic) 0.831569 0.810516 11027.00 9.73E+08 -106.1547 39.49731 0.000237 Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion Hannan-Quinn criter. Durbin-Watson stat 35144.20 25332.07 21.63094 21.69146 21.56455 0.468111 Analysis: The regression test on NET NPA and NET PROFIT show the R squared is .831569 means the both variable in the test show the relation between each other positive and data will affect with each other. If the variable is more than 2 then the chances of getting R-square is 1 means High relationship between them, therefore we can applied the test of Adjusted R-squared. Here the variable more than two does not affect with each other. And Adjusted R-square is 0.810516 it shows high relationship between NPA and PROFIT if the NPA increase its affect the PROFIT margin of public sector Banks. S.K.Patel Institute of Management and Computer Studies (MBA) Page 37
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” Table No-1.4: Granger Causality Tests. Null Hypothesis NETPROFIT does not Granger Cause NETNPA F-Statistic 0.07989 Probability 0.9251 Decision Accepted NETNPA does not Granger Cause NETPROFIT .86378 0.5055 Accepted Analysis: Granger Causality test say if the probability is less than 0.05 reject the null hypothesis, if more than 0.05 accepted the hypothesis. Here in Net Profit to Net NPA the probability is 0.9251 means Accepted and NET NPA to NET PROFIT is 0.5055 the null hypothesis Accepted and will affected the each other, here if Net Profit Decreases its means the affected by NPA. Table No-1.5: Johansen Cointegration Test. Unrestricted Cointegration Rank Test (Trace) Hypothesized No. of CE(s) Eigenvalue Trace Statistic 0.05 Critical Value Prob.** None * At most 1 0.950581 0.001385 24.07038 0.011090 15.49471 3.841466 0.0020 0.9159 Trace test indicates 1 cointegrating eqn(s) at the 0.05 level * denotes rejection of the hypothesis at the 0.05 level **MacKinnon-Haug-Michelis (1999) p-values Unrestricted Cointegration Rank Test (Maximum Eigenvalue) Hypothesized No. of CE(s) Eigenvalue None * At most 1 0.950581 0.001385 Max-Eigen 0.05 Statistic Critical Value 24.05929 0.011090 14.26460 3.841466 Prob.** 0.0011 0.9159 Max-eigenvalue test indicates 1 cointegrating eqn(s) at the 0.05 level * denotes rejection of the hypothesis at the 0.05 level **MacKinnon-Haug-Michelis (1999) p-values S.K.Patel Institute of Management and Computer Studies (MBA) Page 38
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” (2) To evaluate the impact of non-performing assets on profitability with other variables. Table No-2: NPA of Priority, Non-priority, and Remaining Public to Net Profit (Amount in Crores) Year 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Priority Sector 24939 23841 21926 22374 22954 25287 24318 30848 41245 48524 Non-priority Sector 26781 25698 23249 18664 15158 14153 19251 25929 29803 34502 Public Sector 1087 610 444 341 490 299 474 524 278 746 Net Profit 12295 16546 15784 16539 20152 26592 34394 57109 70331 81700 (Source: Report on Trend And Progress of Banking In India from 2003 to 2012) Table No-2.1: Descriptive test. Mean Median Std. Dev. Skewness Kurtosis Jarque-Bera Probability PRIORITY 28625.60 24628.50 9082.669 1.390414 3.408916 3.291758 0.192843 NON PRIORITY 23318.80 24473.50 6501.273 0.111797 2.064054 0.385829 0.824553 PUBLIC 529.3000 482.0000 242.2244 1.224214 3.841249 2.792707 0.247498 NET PROFIT 35144.20 23372.00 25332.07 0.857480 2.150133 1.526400 0.466172 Analysis: Jarque-Bera: From the Data it is clear that Probability is more than 0.05 that‟s show the data follow the normality in the past 10 year in NPA & PROFIT. The probability is respectively in priority sector, Non priority sector & Public sector to Net Profit like 0.1928 & 0.82450 & 0.2474 & 0.4661 that‟s shows normally distributed. Kurtosis: From the result it is clear that data follow the Platykurtic. The standard is less than 3 in both the variable like Non priority & Net Profit and more than 3 than data follow the Leptokurtic. Both variable priority sector and public sector result is 3.4089 &3.8141 respectively. S.K.Patel Institute of Management and Computer Studies (MBA) Page 39
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” Skewness: The standard of the test is in negative or positive; here result shows positive in the entire variable its show the normally distributed follow by data. Table No-2.2: Correlation Analysis. PRIORITY NON PRIORITY PUBLIC NET PROFIT PRIORITY 1 0.77145 0.08411 0.94424 NONPRIORITY PUBLIC NETPROFIT 1 0.45452 0.6574 1 -0.09704 1 Analysis: Correlation results show the positive correlation between PRIORITY and NET PROFIT and Average correlation between NON PRIORITY and NET PROFIT and no correlation between PUBLIC SECTOR and NET PROFIT. The one of the objective to know the impact of npa on profitability with other variable it‟s clear in result that Correlation is respectively 0.94424, 0.6574 and -0.09704. If correlation more than 0.800 then it indicate high relation and between 0 .8 to 0.5 then it indicate average relation. Table No-2.3: Regression Test. Variable Coefficient Std. Error t-Statistic Prob. C PRIORITY NONPRIORITY PUBLIC -31528.83 2.689335 -0.026662 -18.30542 11185.74 0.562783 0.879563 15.07430 -2.818664 4.778634 -0.030313 -1.214346 0.0304 0.0031 0.9768 0.2702 R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood F-statistic Prob(F-statistic) 0.922970 0.884455 8610.854 4.45E+08 -102.2430 23.96392 0.000970 Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion Hannan-Quinn criter. Durbin-Watson stat 35144.20 25332.07 21.24861 21.36964 21.11583 1.433864 Analysis: The regression test on NPA of Priority sector, Non-Priority sector and Public sector and NET PROFIT show the R squared is 0.922970 means the both variable in the test show the relation between each other is very high and data will affect with each other. If the variable is more than 2 the chances of getting R-square is 1 means High relationship between them, therefore we can applied the test of Adjusted R-squared. Here the variable more than two does not S.K.Patel Institute of Management and Computer Studies (MBA) Page 40
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” affect with each other. And Adjusted R-square is 0.884455 it show high relationship between NPA of Priority sector, Non- priority sector, public sector and PROFIT. If the NPA of different sector increase the decrease in the PROFIT margin of public sector Banks Table No-2.4: Pairwise Granger Causality Tests. Null Hypothesis F-Statistic Probability Decision NETPROFIT does not Granger Cause PRIORITY 11.9584 0.0372 Rejected PRIORITY does not Granger Cause NETPROFIT 3.7898 0.1510 Accepted NETPROFIT does not Granger Cause NONPRIORITY 1.87085 0.2968 Accepted NONPRIORITY does not Granger Cause NETPROFIT 13.1264 0.0328 Rejected NETPROFIT does not Granger Cause PUBLIC 1.57091 0.3414 Accepted PUBLIC does not Granger Cause NETPROFIT 1.75564 0.3127 Accepted Analysis: Granger Causality test say if the probability is less than 0.05 reject the null hypothesis and if more than 0.05 accepted the null hypothesis. Here in Net Profit to Priority Sector the probability is 0.0372 means Rejected the null hypothesis and Net Profit to Non Priority sector the probability is 0.2968 means Accepted the null hypothesis and Net Profit to Public Sector the probability is 0.3414 means Accepted the null hypothesis and other like Priority to Net profit is accepted, Non priority to Net profit Rejected and Public to Net profit Accepted. The results show the accepted and rejection of null hypothesis, and will affected the each other, here if Net Profit Decreases its means the affected by NPA. S.K.Patel Institute of Management and Computer Studies (MBA) Page 41
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” (3) To examine the impact of non-performing assets on efficiency and Liquidity. Table No-3: Gross NPA to Gross Advance and Ratio of Gross NPA to Gross Advance. (Amount in Crores) Year Gross NPA Gross Advance Gross NPA To Gross Advances 2002-03 56,473 577813 6.85 2003-04 54,090 661975 7.79 2004-05 52,880 877825 5.53 2005-06 41,358 1134724 3.64 2006-07 38,968 1464493 2.66 2007-08 40,595 1819074 2.23 2008-09 44,957 2282081 2.19 2009-10 59,926 2736347 2.23 2010-11 74,614 3265245 2.5 2011-12 117,200 3645235 3.1 (Source: Report On Trend And Progress of Banking In India from 2003 to 2012) Table No-3.1: Descriptive Statistics of Public sector bank. Mean Median Std. Dev. Skewness Kurtosis Jarque-Bera Probability GROSS ADVANCE 1846481. 1641784. 1097176. 0.393184 1.780627 0.877186 0.644943 GROSS NPA 58106.10 53485.00 23429.14 1.742166 5.165252 7.012038 0.030016 Analysis: Jarque-Bera: From the Data it is clear that Probability is more than 0.05 that‟s show the data follow the normality in the past 10 year in GROSS NPA & GROSS ADVANCES. Here the probability is respectively 0.030016 & 0.644943 that‟s show normally distributed in GROSS ADVANCE and GROSS NPA Do not follow the normal distribution. S.K.Patel Institute of Management and Computer Studies (MBA) Page 42
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” Kurtosis: From the result it is clear that data follow the Platykurtic. The standard is less than 3 in gross advances and gross NPA it follow the Leptokurtic. Here the result respectively in GROSS ADVANCES and GROSS NPA is 1.780627 and 5.165252. Skewness: The standard of the test is in negative or positive; here result shows positive in both the variable its show the normally distributed follow by data. Table No-3.2: Correlation Analysis. GROSS ADVANCE 1 0.67952 GROSS ADVANCE GROSS NPA GROSS NPA 1 Analysis: Correlation result shows the positive correlation between GROSS NPA and GROSS ADVANCE its shows the one of the objective to know the liquidity impact of NPA in public sector Banks, it‟s clear in result that Correlation is 0.67952 if more than 0.800 it indicate high correlation between them, but here not more correlation between gross advance and gross npa its result the npa does not affected greater to Liquidity. Table No-3.3: Regression analysis. Variable Coefficient Std. Error t-Statistic Prob. C 31312.51 11740.57 2.667035 0.0285 GROSSADVANCE 0.014511 0.005539 2.619754 0.0307 R-squared Adjusted R-squared 0.461755 0.394474 Mean dependent var S.D. dependent var 58106.10 23429.14 S.E. of regression 18231.52 Akaike info criterion 22.63655 Sum squared resid 2.66E+09 Schwarz criterion 22.69706 Log likelihood -111.1827 Hannan-Quinn criter. 22.57016 F-statistic 6.863112 Durbin-Watson stat 0.687269 Prob(F-statistic) 0.030662 Analysis: The regression test on GROSS ADVANCES and GROSS NPA show the R squared is 0.461755 means the both variable in the test show the relation between each other are not positive and data will affect with each other is lesser. If the variable is more than 2 the chances of getting R-square is 1 means High relationship between them, therefore we can S.K.Patel Institute of Management and Computer Studies (MBA) Page 43
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” applied the test of Adjusted R-squared. Here the variable more than two does not affect with each other. And Adjusted R-square is 0.394474 it show less relationship between GROSS ADVANCES and GROSS NPA if the GROSS NPA increase it does not affect the GROSS ADVANCES of public sector Banks. Table No-3.4: Granger Causality Tests. Null Hypothesis F-Statistic Probability Decision GROSS NPA does not Granger Cause GROSS ADVANCE 4.22619 0.1341 Accepted GROSS ADVANCE does not Granger Cause GROSS NPA 6.35724 .0834 Accepted Analysis: Granger Causality test say if the probability is less than 0.05 reject the null hypothesis if more than 0.05 accepted the null hypothesis. Here in GROSS NPA and GROSS ADVANCES the probability is 0.1341 means accepted the null hypothesis and in GROSS ADVANCES and GROSS NPA probability 0.0834 accepted the null hypothesis. Table No-3.5: Johansen Cointegration test. Unrestricted Cointegration Rank Test (Trace) Hypothesized No. of CE(s) Eigenvalue Trace Statistic 0.05 Critical Value Prob.** None * At most 1 * 0.969779 0.688035 37.31267 9.318926 15.49471 3.841466 0.0000 0.0023 Trace test indicates 2 cointegrating eqn(s) at the 0.05 level * denotes rejection of the hypothesis at the 0.05 level Unrestricted Cointegration Rank Test (Maximum Eigenvalue) Hypothesized No. of CE(s) Eigenvalue Max-Eigen Statistic 0.05 Critical Value Prob.** None * At most 1 * 0.969779 0.688035 27.99374 9.318926 14.26460 3.841466 0.0002 0.0023 * denotes rejection of the hypothesis at the 0.05 level **MacKinnon-Haug-Michelis (1999) p-values S.K.Patel Institute of Management and Computer Studies (MBA) Page 44
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” Ratio analysis of ratio between gross advances and gross NPA On the basis of Ratio of last 10 year gross advances and gross NPA is high in 2002-03 to 2005-06, is approximately between in 2003-04 is 7.79 thereafter slowly decreases and low in the year 2008-09 is 2.19. If we taken average of all the ratio is 3.871 is good than individual year ratio. S.K.Patel Institute of Management and Computer Studies (MBA) Page 45
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” (4) To know the ratio of NPA and Advances of public sector banks. Table No-4: Net NPA to Net Advance and Ratio of NPA and Advance. Year Net NPA Net Advance Net NPA To Net Advances 2002-03 24877 5,49,351 3.03 2003-04 19335 6,31,383 2.99 2004-05 16904 8,48,912 2.06 2005-06 14566 11,06,128 1.32 2006-07 15144 14,40,123 1.05 2007-08 17726 17,97,504 0.99 2008-09 21033 22,60,156 1.09 2009-10 29644 26,32,236 1.09 2010-11 36071 32,03,125 1.1 2011-12 39423 35,21,563 1.4 (Source: Report on Trend and Progress of Banking in India from 2003 to 2012) Table No-4.1: Descriptive Statistics of Public sector. Mean Median Std. Dev. Skewness Kurtosis Jarque-Bera Probability NET ADVANCE 1799048. 1618814. 1068864. 0.362051 1.757141 0.862093 0.649829 NET NPA 23472.30 20184.00 8826.273 0.758552 2.151510 1.258974 0.532865 Analysis: Jarque-Bera: From the Data it is clear that Probability is more than 0.05 it show the data follow the normality in the past 10 year in NET ADVANCES and NET NPA. The probability is respectively 0.64989 & 0.532865 it show normally distributed. Kurtosis: From the result it is clear that data follow the Platykurtic. The standard is less than 3 then data follow Platykurtic, if more than 3 then data follow the Leptokurtic. Here both variable NET ADVANCE & NET NPA result is 1.757141 &2.151510 respectively. S.K.Patel Institute of Management and Computer Studies (MBA) Page 46
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” Skewness: The standard of the test is in negative or positive; here result shows positive in both the variable its show the normally distributed follow by data. Table No-4.2: Correlation Analysis. NETADVANCE 1 0.7969 NETADVANCE NETNPA NET NPA 1 Analysis: Correlation result shows the positive correlation between NET NPA and NET ADVANCE. Its show the one of the objective to know the impact of npa on liquidity. It‟s clear in result the Correlation is 0.7969 is equal to 0.800 it indicate high correlation between them. Table No-4.3: Regression test. Variable Coefficient Std. Error t-Statistic Prob. C NETADVANCE 11632.64 0.006581 3641.754 0.001763 3.194240 3.731944 0.0127 0.0058 R-squared Adjusted R-squared S.E. of regression Sum squared resid Log likelihood F-statistic Prob(F-statistic) 0.635160 0.589555 5654.641 2.56E+08 -99.47599 13.92740 0.005772 Mean dependent var S.D. dependent var Akaike info criterion Schwarz criterion Hannan-Quinn criter. Durbin-Watson stat 23472.30 8826.273 20.29520 20.35571 20.22881 0.459668 Analysis: The regression test on NET NPA and NET ADVANCE shows the R squared is 0.635160 means the both variable in the test show the relation between each other positive and data will affect with each other. If the variable is more than 2 then the chances of getting R-square is 1, means High relationship between them, therefore we can applied the test of Adjusted Rsquared. Here the variable more than two does not affect with each other. And Adjusted Rsquare is 0.589555 it show average relationship between NET NPA and NET ADVANCE. S.K.Patel Institute of Management and Computer Studies (MBA) Page 47
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” Table No-4.4: Granger Causality Tests. Null Hypothesis F-Statistic Probability Decision NET NPA does not Granger Cause NET ADVANCE 44.7597 .0058 Rejected NET ADVANCE does not Granger Cause NET NPA 1.76669 0.3112 Accepted Analysis: Granger Causality test say if the probability is less than 0.05 reject the null hypothesis if more than 0.05 accepted the null hypothesis. Here in Net ADVANCE to Net NPA the probability is 0.3112 means Accepted and NET NPA to NET ADVANCE is 0.0058 the null hypothesis rejected and NET NPA does not cause NET ADVANCE and in second test NET ADVANCE cause the NET NPA. Table No-4.5: Johansen Cointegration Test. Unrestricted Cointegration Rank Test (Trace) Hypothesized No. of CE(s) Eigenvalue Trace Statistic 0.05 Critical Value Prob.** None * At most 1 0.978742 0.157973 32.18377 1.375550 15.49471 3.841466 0.0001 0.2409 Trace test indicates 1 cointegrating eqn(s) at the 0.05 level * denotes rejection of the hypothesis at the 0.05 level **MacKinnon-Haug-Michelis (1999) p-values Unrestricted Cointegration Rank Test (Maximum Eigenvalue) Hypothesized No. of CE(s) Eigenvalue Max-Eigen Statistic 0.05 Critical Value Prob.** None * At most 1 0.978742 0.157973 30.80822 1.375550 14.26460 3.841466 0.0001 0.2409 Max-eigenvalue test indicates 1 cointegrating eqn(s) at the 0.05 level * denotes rejection of the hypothesis at the 0.05 level **MacKinnon-Haug-Michelis (1999) p-values S.K.Patel Institute of Management and Computer Studies (MBA) Page 48
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” Ratio analysi between NET ADVANCES and GROSS NPA On the basis of Ratio of last 10 year net advances and net NPA is average in 2002-03 to 2011-12 compare to Gross Advances to Gross Npa and approximately between heights in 2002-03 is 3.03 thereafter slowly decreases and low in year 2007-08 is 0.99. If we taken average of all the ratio is 1.1612 is good than individual year ratio. S.K.Patel Institute of Management and Computer Studies (MBA) Page 49
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” Chapter – 6. FINDING a. Form the Analysis we came to know that there is a positive relationship between NPA and Profitability in public sector banks. b. After analysis of impact of non-performing assets on profitability with other variables. Like priority sector, non priority sector, and other variable, show high correlation ship between NPA with Priority sector and average correlation ship between NPA and NonPriority sector and other public sector. c. After analysis of the impact of non-performing assets on efficiency and Liquidity show Average correlation ship. d. The ratio of NPA and Advances of public sector banks is high. S.K.Patel Institute of Management and Computer Studies (MBA) Page 50
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” Chapter – 7. CONCLUSION The NPAs of public sector banks in absolute terms has shown increasing trend till 2003-04 to 2011-12 and declined later on in 2004-05 to 2007-08, where as its test applied in the NET NAP and NET ADVANCE also prove that‟s the significant impact of NPA on profitability in public sector banks. If the talk about profitability from applied all the test it‟s null hypothesis rejected and correlation is more than 0.8 and regression R-square is also good and Johansen Cointegration Test give the result that null hypothesis is also rejected at 0.05 level. Result of other variable of priority sector, non-priority sector and remaining public sector its result of impact on profit is also more and other result for liquidity show there is not much more but only average impact on liquidity. Indian banking sector is facing a serious problem of NPA. The extent of NPA is comparatively higher in public sectors banks than the private sector. The impact of NPA on profitability them from applied a test we concluded that Correlation result show the positive correlation between NET NPA and NET PROFIT its show Correlation is 0.912 is more than 0.800 the indicate high correlation between them. Also other tools analysis Granger Causality test says if Net Profit Decreases its means the affected by NPA. The Correlation result show the positive correlation between PRIORITY and NET PROFIT and Average relation between NON PRIORITY and NET PROFIT and no correlation between PUBLIC SECTOR And NET PROFIT show the one of the objective to know the impact of npa on profitability with other variable its clear in result the Correlation is respectively like 0.94424, 0.6574 and -0.09704 is more than 0.800 the indicate high correlation and between0 .8 to 0.5between them indicate average. Correlation result show the positive correlation between GROSS NPA and GROSS ADVANCE its show the one of the objective to know the liquidity impact of NPA in public sector Banks, it‟s clear in result the Correlation is 0.67952 if more than 0.800 the indicate high correlation between them, but here the not more correlation between gross advance and gross npa its result the npa does not affected greater to Liquidity. Correlation result show the positive correlation between NET NPA and NET ADVANCE its show the one of the objective to know the impact of npa on liquidity its clear in result the Correlation is 0.7969 is more than 0.800 the indicate high correlation between them. S.K.Patel Institute of Management and Computer Studies (MBA) Page 51
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” Chapter – 8. REFERENCES 1. Anshu Bansal* (2012) " A Study On Recent Trends In Risk Management Of Non Performing Assets (Npas) By Public Sector Banks In India”- Journal of Information and Operations Management ISSN: 0976–7754 & E-ISSN: 0976–7762 , Volume 3, Issue 1, , pp-50– 56. 2. Chandan Chatterjee*, Jeet Mukherjee; Dr.Ratan Das (November 2012) “ Management Of Non Performing Assets - A Current Scenario” International Journal of Social Science & Interdisciplinary Research Vol.1 Issue 11, , ISSN 2277 3630. 3. Dr. A. Shyamala Assistant Professor of Economics,“Npas In Indian Banking Sector: Impact On Profitability” Vol.1,Issue.V/June; 12pp.1-4 Indian Streams Research Journal 4. Damodar gujarati “basic Economatrix” Eviews software. 5. Dr. Anindita Chakraborty*( January -- June 2012) “Employees‟ Perception towards NPAs: A Comparative Study of Public Sector and Private Sector Banks” Volume-I, No.-3, Business Spectrum ISSN-2249-4804. 6. Dr. Dhiraj Jain*, Ms. Nasreen Sheikh,( September 2012) “A Comparative Study Of Loan Performance Npa And Net Profit In Selected Indian Private Banks” IRJC International Journal of Marketing, Financial Services & Management Research Vol.1 Issue 9, , ISSN 2277 3622. 7. Dr. Namita Rajput, Anu Priya Arora, Baljeet Kaur “Management Of Non-Performing Assets A Study Of Indian Public Sector Banks” IJMIE Volume 2, Issue 4 ISSN: 22490558. 8. Dr. Viplaw Kishore Pandey* Mrs. Harmeet Kaur, (May, 2012) “Npa In Banking Sector: Some Correlational Evidence” Volume 2, Issue 5 ISSN: 2249‐ 7323 9. Dr.Hosmani.A.P*, Mr.Jagadish Hudagi, (December 2011) “Unearthing The Epidemic Of Non-Per Forming Assets -A Study With Reference To Public Sector Banks In India” International Journal of Multidisciplinary Research Vol.1 Issue 8, ISSN 2231 5780. 10. K. Veerakumar*,(2012) “Non-Performing Assets in Priority Sector: A Threat to Indian Scheduled Commercial Banks International Research Journal of Finance and Economics” ISSN 1450-2887 Issue 93 (© EuroJournals Publishing, Inc. 2012 11. Ms. Rajni Saluja & Dr. Roshan Lal, (2010), “Comparative Analysis On Non‐ Performing Assets (Npas) Of Public Sector, Private Sector And Foreign Banks In India” Volume No. 1 Issue No. 7 (November) S.K.Patel Institute of Management and Computer Studies (MBA) Page 52
    • “A Study on Impact of NPA on Profitability and Liquidity In Public Sector Banks” 12. Mahipal Singh Yadav,(June, 2011) “Impact Of Non Performing Assets On Profitability And Productvity Of Public Sector Banks In India” AFBE Journal Volume 4, No. 1, Issn 2071-7873 13. Mr. Sandeep Aggarwal, Assistant Professor, Indira Gandhi P.G. Regional CenterMirpur.Ms. Parul Mittal, Non-Performing Assest: “Comparative Position of Public and Private Sector Banks in India” International Journal of Business and Management Tomorrow Vol. 2 No. 1 14. Namita Rajput; Monika Gupta; Mr. Ajay Kumar Chauhan,( September 2012) “Profitability And Credit Culture Of Npas: An Empirical Analysis Of PSBs” International Journal of Marketing, Financial Services & Management Research Vol.1 Issue 9, ISSN 2277 3622 15. Neha Kalra, Shaveta Gupta, Rajesh Bagga, “Non-Performing Assets: A Brunt on Financial Performance of Banks” AFBE JOURNAL Volume 5, No. 2, December, 2012 ISSN 2071-7873 16. P.Malyadri, Sirisha,* , (June 2012) “Asset Quality and Non Performing Assets of Indian Commercial Banks” Advances in Asian Social Science 224Vol. 1, No. 2 Copyright ©World Science Publisher, United States 17. “RBI issue of trends and progress of banking sector in india” for last 10 year data. 18. Shahbaz Haneef*, Tabassum Riaz Muhammad Ramzan Mansoor Ali Rana Hafiz Muhammad Ishaq Yasir Karim , Pakistan, (April 2012) “ Impact of Risk Management on Non-Performing Loans and Profitability of Banking Sector of Pakistan” International Journal of Business and Social Science Vol. 3 No. 7; 19. Siraj. K.K, Prof. (Dr). P. Sudarsanan Pillai, “A Study on the Performance of NonPerforming Assets (NPAs) of Indian Banking During Post Millennium Period” International Journal of Business and Management Tomorrow Vol. 2 No. 3 S.K.Patel Institute of Management and Computer Studies (MBA) Page 53