2014
The economic progress of a nation and development of banking is invariably interrelated. The
Banking sector is an indispensable financial service sector supporting development plans through
channelizing funds for productive purpose, intermediating flow of funds from surplus to deficit
units and supporting financial and economic policies of the government. The importance of
banks stability in a developing economy is noteworthy as any distress affects the development
plans thereby the economic progress. The Indian Banking sector accounts a major portion of
financial intermediation and acknowledged as main vehicle for monetary policy signals, credit
channel and facilitator for payment systems. Bank serves social objective through its priority
sector lending, mass branch networks and employment generation. Maintaining asset quality
and profitability are critical for banks survival and growth. A major threat to banking sector is
prevalence of Non-Performing Assets (NPAs). NPA represent bad loans, the borrowers of which
failed to satisfy their repayment obligations. NPA in loan portfolio affects operational efficiency
which in turn affects profitability, liquidity and solvency position of the banks. Keeping this in
view, this study has been carried out to study the causes and effects of the Non-Performing
Assets in Indian bank and to provide constructive suggestions to reduce the same.
Keywords: NPA, Indian Bank, NPA Recovery, Impact of NPA
INTRODUCTION
Karaikudi Institute of Management, KIT & KIM Technical Campus (Affiliated to Anna University, Chennai), Keeranipatti, Thalakkavur,
Karaikudi 630 307, Sivaganga District , Tamil Nadu.
CAUSES OF NPA
Various reasons can be cited for an account
becoming NPA. An asset leads to NPA when the
borrower fails to repay the interest and/or principal
on agreed terms. The reasons for NPA are
classified differently; into causes.
Some of the important reasons for NPA, are
mentioned below:
THE NON-PERFORMING
ASSETS
IMPACT OF NPA
The most important business implication of the
NPAs is that it leads to the credit risk management
assuming priority over other aspects of banks
International Presence
Overseas Branches In Singapore, Colombo
Including a Foreign Currency Banking Unit At
Colombo And Jaffna and Have 240 Overseas
3. To predict the Non-Performing Assets and baddebts that could be written-off by the Indian
Bank.
4. To provide suggestion to the branch office for
efficient loan recovery and Non-Performing
Assets Management.
STATEMENT OF
HYPOTHESES
RESEARCH METHODOLOGY
Research Design
The study is descriptive in nature, as it attempts
to study and describe the impact of NonPerforming Assets on the revenue and the
profitability of Indian Bank.
Sample Design
The Population and Sample data on all above
variables are collected from the Annual Reports
2007 to 2012.
Data Collection
http://www.thehindubusinessline.com/industry-and-economy/banking/we-will-continue-with-aggressive-recovery-drive-to-reduce-npas/
article4699508.ece
http://taxguru.in/finance/publishing-loan-defaulters-photos-newspapers-illegal.html
Year
Operating
Profit Before
Bad Debt
Written-Off
(in Cr.)
Bad
Debt
WrittenOff
Operating
Profit After
Bad Debt
Written-Off
(in Cr.)
Ratio of
Bad
Debt to
Operating
Profit
2008
1659
425.24
1233.76
34.47%
2009
2056
40.39
2015.61
2.00%
Data Processing
2010
2747
381.53
2365.47
16.13%
2011
3292
662.48
2629.52
25.19%
2012
3463
654.74
2808.26
23.31%
Calculated
t- Value
Degrees of
Freedom
(df)
Level of
Significance
Test
Type
Sig.
Value
(p-value)
3.806
5% or 0.05
2 Tail Test
0.019
Outcome
Result
HYPOTHESIS TESTING
Test -1: Before After Paired t-Test.
Year
2008
97.59
2009
93.81
2010
144.93
2011
397.04
2012
11196.83
Calculated
t- Value
Degrees of
Freedom
(df)
Level of
Significance
Test
Type
Sig.
Value
(p-value)
1.083
5% or 0.05
Two-Tailed
0.340
Outcome
Result
Conclusion
DISCUSSION ON FINDINGS
OF THE RESEARCH STUDY
HYPOTHESIS FINDINGS
SUGGESTIONS
Following are some of the suggestions for
Reducing NPAs in Indian Bank:
4. CIBIL:
Make borrowers realize that if they default in
repayment of their loans, then their name
would get registered with CIBIL which means
they are black listed and it impacts the
borrowers credit history, which means one
cannot borrow any loan from any bank.
BIBLIOGRAPHY
Books
1.
2.
3.
4.
5.
6.
7.
8.
CONCLUSION
WEBSITES
1.
npa-and-impact-on-indian-economy8146.as
http://www.indian-bank.com/annual_
report.php
2.
http://www.rbi.org.in/SCRIPTs/Publication
ReportDetails.aspx?UrlPage=Reporton
Currencyand Finance&ID=502
3.
http://www.caclubindia.com/articles/banks-
RESEARCH PAPERS
1.
2007
1.85%
0.35%
2008
1.21%
0.24%
2009
0.89%
0.18%
2010
0.81%
0.23%
2011
0.98%
0.53%
2012
2.03%
1.33%
Note: 1. Average Gross NPA Ratio for the last 6 years = 1.30%; 2. Average Net NPA Ratio for the last 6 years = 0.48%; 3. Highest NPA
1.33% prevailed in 2012 and the lowest 0.18% NPA prevailed in 2009.
2008
97.59
0.24%
2009
93.81
0.18%
2010
144.93
0.23%
2011
397.04
0.53%
2012
11196.83
1.33%
Statistical Inference: 1. Average amount of NPA for the last 5 years Rs. 2386.04; 2. Average Net NPA Ratio for the last 5 years = 0.502 %;
Highest amount of NPA Rs. 11196.83 prevailed in 2012 and the lowest amount of NPA Rs. 93.81 prevailed in 2009.
2008
5213
425.24
8.16
2009
6830
40.39
0.59
2010
7714
381.53
4.95
2011
9361
662.48
7.08
2012
12231
654.74
5.35
Statistical Inference: 1. Average amount of Interest Income = Rs. 8269.8; 2. The highest loan interest income = Rs. 12231 (2012); 3. The lowest
amount of interest income = Rs. 5213 (2008); 4. The Average amount of bad debts written off = 432.876.
STATISTICAL ANALYSIS
1. Formulation of linear equation that predicts the probable NPA of Indian bank for 2013, 2014 and 2015:
Year (x)
x=X-Xbar
Square of x
xY
2008
97.59
-2
-195.18
2009
93.81
-1
-93.81
2010
144.93
2011
397.04
397.04
2012
11196.83
22393.66
N (No. of Years)
2010
2013
9136.553
Sum of Y
11930.2
2014
11386.724
Sum of Xy
22501.71
2015
13636.895
x-bar
10
Sum of Square of x
Statistical Inference:
Above linear equation shows that the probable NPAs of Indian
Bank for the period between 2013 and 2015 could see upward
swing.
Formulation of linear equation that predicts the probable baddebts of Indian bank for 2013, 2014 and 2015:
Linear Equation: Y = a + b x
Year (x)
A
2386.04
Year
Y=a+bx
2250.171
2013
2014
2015
2008
425.24
-2
2009
40.39
-1
2010
381.53
2011
662.48
2012
654.74
N (No. of Years)
x-bar
2010
Sum of Y
2164.38
Sum of xY
1081.09
Sum of Square of x
10
Linear Equation: Y = a + b x
A
432.876
Year
Y=a+bx
108.109
2013
2014
2015
Trend Values or Probable Bad-Debts that could be writtenOff during 2013 and 2015
Year (x)
2013
757.203
2014
865.312
2015
973.421
Statistical Inference:
Above linear equation shows that the probable bad-debts of Indian
Bank that could be written-off for the period between 2013 and
2015 could see an upward swing.