KIJECBM V6 (2019) 14-20

Kaav International Journal of Economics, Commerce & Business

Management
(A Refereed Blind Peer Review Journal)

Non-Performing Assets: A Comparative Study of SBI & HDFC Bank.

1Mr. Santosh Shah, 2Mr. Dhruv Sharma

1Assistant Professo, Institute of Management Studies, University Courses Campus, Ghaziabad, 2Assistant Professor
Institute of Management Studies, University Courses Campus, Ghaziabad

Received: Apr 6, 2019 Revised: Apr 25, 2019; Accepted: May 14, 2019

Article Info Abstract

The two Banking system of an economy is of predominant importance two

ISSN: 2348-4969
for its monetary and financial development. It types the core of the monetary region
Volume -6, Year-(2019) and plays a necessary position in transmitting monetary coverage impulses to the
Issue-02 (Apr-Jun) whole economic machine. NPAs have turned to be a principal stumbling block
Article Id:- affecting the profitability of Indian Banks before 1992, Banks did no longer divulge the
KIJECBM 2019/V-6/ISS-2/A03 horrific debts sustained through them and provision made by using them fearing that
it may additionally have an adverse.
© 2019 Kaav Publications. All The introduction of prudential norms fortify the Banks monetary function
rights reserved and decorate transparency is regarded as a milestone measure in the financial sector
reform.
Keywords An Explorative learn about was once adopted to achieve the objectives of the
Economic Development, HDFC
study, and they learn about used to be carried out in SBI Bank, “Non-Performing
Bank, Non-Performing Assets,
Stability, State Bank of India Assets”. The objective of the study is to analyze the NPA stage, how some distance the
financial organization has been successful in decreasing the NPA level.
This paper is an attempt to compare the non- performing assets of SBI and HDFC Bank
using the secondary data analysis and to comment on their individual performances
too. This study also identifies the cause of the increasing non-performing assets in the
Banks with few suggestions have also been extended.

from the failure of receiver to satisfy its written

Introduction
agreement obligations either throughout the course of a
A robust banking sector is very significant for dealing or on a future obligation. The failure of the
healthy economy. One in every of the foremost vital and banking sector could have Associate in nursing adverse
major roles contend by banking sector is that of loaning impact on different sectors. Non- playing assets area unit
business. It’s usually inspired as a result of it's the result one in every of the main considerations for banks in India.
of funds being transferred from the system to productive NPAs mirror the performance of banks.
functions that conjointly results into economic process. As
A high level of NPAs suggests high chance of an
there area unit execs and cons of everything, constant is
oversized variety of credit defaults that have an effect on
with loaning business that carries credit risk, that arises
the gain and net-worth of banks and conjointly erodes the

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worth of the quality. The foreign terrorist organization Classification of loans
growth involves the need of provisions that reduces the In India Bank loans are categorized on the
general profits and shareholders’ worth. the difficulty of following basis:
Non playing Assets has been mentioned at length for
Performing Assets: Loans where the interest and/or
national economy everywhere the planet. The matter of
principal are not due over 180 days at the end of the FY.
NPAs isn't solely touching the banks however conjointly
the full economy in truth high level of NPAs in Indian Non-Performing Assets: Any loan repayment, which is
banks is nothing however a mirrored image of the state of overdue 180 days beyond or two quarters, is considered
health of the business and trade. This project deals with as NPA.
understanding the construct of NPAs, its Impact / Effects of NPA on Banks
magnitude associated major causes for an A robust Banking sector is important for
account changing into non-performing, projection of NPAs prosperous economy. The letdown of the Banking sector
over next years in banks and closing remarks. The may have an adversative impact on other sectors. NPAs
magnitude of NPAs have an instantaneous impact on are one of the major concerns for Banks in India. The only
Banks gain lawfully {|they're} not allowed to problem that hampers the possible financial presentation
book financial gain on such accounts and at identical time of the Banks is the cumulative results of the NPAs. Non-
banks are forced to create provisions on such assets as Performing Assets do not produce interest income for the
per tally tips. Banks, but the same time Banks are required to make
An quality is assessed as non-performing quality requirements for such NPAs from their contemporary
(NPAs) if dues among the fashion of principal and interest profits.
are not paid by the receiver for a quantity of 1 hundred  They grind down current profits through
eighty days, however with result from March 2004, provisioning requirements.
default standing would tend to a receiver if dues are not
 They result in reduced interest income.
procured ninety days. If any advance or credit facility
granted by bank to a receiver becomes nonperforming,  They need higher provisioning necessities affecting
then the bank will got to treat all the advances/credit profits and addition to capital.
facilities granted to that receiver as non-performing  They limit recycling of funds, set in assets-liability
whereas not having any connection the particular mismatches, etc.
undeniable fact that there ought to still exist positive  Adverse impact on Capital Adequacy Ratio.
advances / credit facilities having enjoying standing. The  Bank’s rating & goodwill gets affected.
foreign terrorist group level of our banks is far high than
 Bank’s cost of raising funds goes up.
international standards. One cannot ignore the particular
undeniable fact that a part of the reduction in NPA’s is  Bad effect on equity value.
because of the writing off dangerous loans by banks. Objectives
Indian banks need to look out to form positive that they
The objectives of study are-
provide loans to credit worthy customers.
 To examine and compare the NPA trends of SBI and
Introduction to Banking
HDFC for past years.
Bank A financial institution that is licensed to
 To study the impact of non-performing assets
deal with money and its substitutes by accommodating
(NPA) and the reasons due to which assets
time and demand deposits, constructing loans, and
becoming NPAs.
spending in securities. The Bank generates profits from
the modification in the interest rates charged and paid.  To analyze which Bank (SBI and HDFC) is better in
The development of Banking is an inevitable precondition managing NPA’s.
for the healthy and rapid development of the national  To list the causes of the occurrence of NPA in both
economic structure. Banking institutions have contributed the Banks.
much to the development of the developed countries of  To check whether there exist any relationship
the world. Today we cannot imagine the business world between Net Profit and Net NPA in case of both the
without banking institutions. Banking is as important as Banks.
blood in the human body. Due to the development of
Banking advances are increased and business activities Literature Review
developing so it is rightly said, "The development of (Bhatia 2007) in his research paper entitled,
Banking is not only the root but also the result of the Non-performing assets of Indian public, private and
development of the business world." foreign sector banks studied that, the NPAs are
considered as an important parameter to judge the

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performance and financial health of banks.This aims to their execution due to expanding completion within the
find the fundamental factors which impact NPAs of banks. keeping money sector.
(Meenakshi Rajeev, H P Mahesh 2010) in her (Majumder and Rahman 2016) measured the
studied, banking sector reforms and NPAs in Indian monetary execution of the fifteen chosen banks in
commercial banks to examine the trends of NPAs in India Bangladesh and distinguished the noteworthy distinction
from various dimensions and to explain how immediate in their exhibitions for the period 2009-2013. The
recognition and self-monitoring has been able to reduce it proposed that the lower positioning banks ought to take
to a great extent. essential steps to make strides their shortcomings.
(Saddu, 2011) An endeavor is made within the Research Gap
paper that what is NPA? The components contributing to
In nutshell above literature review, it shows up
NPA, the greatness of NPA, reason for tall NPA & their
that over the long time, different endeavors have been
affect on Indian managing an account operations. Other
made by the analysts and academicians to assess the
than capital to chance weight age resources proportion of
money related position and execution of open division
open & private segment banks, mgt of credit chance &
Banks and private division Banks from diverse
measures to control the danger of NPA are too examined.
perspectives. But there's no seminal work made on the
(Dr. G. Vadivalagan, 2013)There appears to be no investigation of the NPAs of SBI and HDFC from open
unanimity within the appropriate arrangements to be segment Banks and private segment Banks separately in
followed in settling the issue. There's also no consistency India. So, the display consider has attempted to highlight
within the application of NPA norms. The issue of NPA this untouched zone.
isn't constrained to as it were Indian public division banks
but it wins within the whole heating industry. Scope of the Study
(Srinivas, Dec-2013)This paper is embraced to The scope of the study is as given below:
consider the reasons for propels getting to be NPA within  Banks can improve their financial position or can
the Indian commercial banks & grant reasonable increase their income from credits with the help of
recommendation to overcome the issue. The crash of the this study.
keeping money division may have an unfavorable blow on  This study can be used for comparing the
the other division. A investor should be exceptionally performance of the Bank with other Bank.
cautious in lending, since investor isn't loaning cash out of
 This can also be applicable to know the reasons of
his possess capital.
increase in NPAs.
(H.S., January 2013)The research paper
 This study also gives light upon impact of NPAs on
recognizes the impact of a set of small scale financial
performance and profit of Banks.
factors like age, sex, instruction and conjugal status etc. of
Indian ranchers on the administration of their credit. Research Methodology
Credit mgt. incorporates arranging, association, The present study is based on secondary data
controlling, coordinating & co-coordinating the credit analysis. The data has been collected from various web
endorsing approaches in arrange to diminish the non sources like annual reports of respective Banks,
performing resource. information bulletins and journals. The data collected
(D.Jayakkodi.,2015 )A Study on NPA’s of selected were analyzed with the help of statistical tools like Ratio
Public and Private Sector Banks in India aimed to look at analysis, and trend analysis. Tables are used to represent
and compare the Net NPAs and Net NPAs of select Public the consolidated data. Graphical representation is also
and Private Sector Banks. (Mistry and Savani 2015) used for better comprehension & presentation
classified Indian private division banks on the premise of Here, NPA is the independent variable and net
their monetary characteristics and analyzed their money profit is the dependent variable. So we see if due to any
related execution. They found that return on resources changes in the net NPA, the net profits change or not, if
and interest wage have a negative relationship with yes, whether positively or negatively.
operational productivity while, positive relationship with
resource utilization and resource estimate. Data Analysis and Interpretation
(Sodhiand Waraich 2016) made a principal In the below section, various parameters related
investigation with the assistance of key budgetary to NPA are compared and analyzed.
proportions to recognize the esteem of stocks of the Firstly, the total advances, net profits, gross NPA and net
chosen banks and their speculation openings. They found NPAs have been compared for both the Banks.
that private and foreign banks are attempting to improve

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 YEAR TOTAL ADVANCES NET PROFIT GROSS NPA NET NPA
SBI HDFC SBI HDFC SBI HDFC SBI HDFC
1300026 365495.03 13102 10215.92 56725.34 3438.38 27590.58 896.28
2014-15
1463700 464593.96 9951 12296.21 98172.80 4392.83 55807.02 1320.37
2015-16
1571078 554568.20 10484 14549.64 112342.99 5885.66 58277.38 1843.99
2016-17
1934880 658333.09 -6547 17486.73 223427.46 8606.97 110854.70 2601.02
2017-18
https://www.moneycontrol.com/financials/hdfcBank/balance-sheetVI/HDF01#HDF01
Total Advances

Net Profit

Gross NPA

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Net NPA

Secondly, the examination of the NPA trends for both the Banks for the last 4 years has been done.
PERCENTAGE OF GROSS NPA
YEAR
SBI % HDFC %
2014-15 4.25 1.30
2015-16 6.5 1.05
2016-17 9.11 0.94
2017-18 10.91 0.90
*https://www.moneycontrol.com/financials/hdfcBank/balance-sheetVI/HDF01#HDF01
Capital Adequacy Ratio:
Capital Adequacy Ratio can be defined as ratio of Provision Ratio:
the capital of the Bank, to its assets, which are Provisions are to be made for to keep safety
weighted/adjusted according to risk attached to them i.e. against the NPA, & it directly affect on the gross profit of
Capital adequacy the Banks.
Name of the Bank
ratio
NAME OF BANK PROVISION RATIO
State Bank of India 13
SBI 65.95
HDFC Bank 15 HDFC 78.7

Interpretation:
Each Bank needs to create the capital Reserve to
compensate the Non-Performing Assets. Here, HDFC Bank Interpretation:
has shown Better capital adequacy ratio with 15% as
This Ratio indicates the degree of safety
compare to SBI with 13%.So, we can say that HDFC Bank
measures adopted by the Banks. It has direct bearing on
has much power than SBI to compensate for NPAs.
the profitability, The highest provision ratio is showed by

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HDFC Bank with 78.7 % as compared to State Bank of  Study also indicates that major NPA increases
India with 65.95 %. because of govt. recommended priority sectors.
Reasons for an Assets Becoming NPA: -  HDFC have better capital adequacy ratio than SBI.
There are number of reasons for an Assets becoming  The total advances have shown an upwards trend
an NPA for Banks are- for both SBI and HDFC Bank
 Funds borrowed for a particular purpose but not  Net profits for SBI have been fluctuating over the
use for the said purpose. years whereas in case of HDFC Bank. it has largely
 Project not completed in time. been consistent to around 10,000 crore.
 Poor recovery of receivables.  In the case of % Gross NPA, performance of Private
sector Bank- HDFC is doing better as compared to
 One very key reason behind the rising NPA is the
Public sector Bank –SBI Bank
unperturbed offering norms especially for business
honchos when their financial status and credit  In case of % net NPA also, performance of HDFC is
rating is not scrutinized accurately. observed to be improving over the years and hence
creation of less non- performing assets as
 Public Sector Banks provide most of the credit to
compared to SBI Bank Percentage net NPA for SBI
industries and it is this part of the credit spreading
Bank is observed to be continuously rising.
that forms a great lump of NPA.
 In-ability of the corporate to raise capital Conclusion
through the issue of equity or other debt The present study concludes that non-
instrument from capital markets. performing assets is a biggest challenge faced by both
 Public sector lending and extending loans in HDFC Bank and State Bank of India as it leads to downfall
agriculture sector has a substantial contribution to in liquidity balance of the Banks and creates bad debts on
the rising NPAs of the Banking industry. them. Profitability is being affected due to the fluctuations
in NPA levels over the years. On comparing the two Banks
 Diversion of funds for
based on the effect on its profitability, SBI has higher
expansion\modernization\setting up new
NPAs as compared to HDFC Bank. Because of its public
projects\ helping or promoting sister concerns.
nature. Since SBI is a public sector Bank, it is more
 Willful defaults, siphoning of funds, fraud, vulnerable to give up on the returns of the loans extended
management disputes, misappropriation etc. to the general public. One other reason for high NPAs can
 Deficiencies on the part of the Banks viz. in credit be a sharp rise in the provisioning of the bad loans.
appraisal, monitoring and follow-ups, delaying Besides rising NPA, SBI has not managed its profits
settlement of payments\ subsidiaries by consistent, which depicts that the overall management of
government bodies etc., the resources of the Bank is not better. On the other hand,
 Shortage of raw material, raw material\input the net NPAs for HDFC bank are continuously decreasing
price escalation, power shortage, industrial since 2014 so,as compared to SBI they are in a much
recession, excess capacity, natural calamities like better condition. The HDFC Bank has also shown good
floods, accidents. performance in the last few years. On the other hand SBI
Bank is facing the problem of non-performing assets. The
 Failures, non-payment over dues in other
NPAs means those assets which are categorized as bad
countries, recession in other countries,
assets which are not probably be reverted back to the
externalization problems, adverse exchange rates
Banks by the mortgagors. If the precise management of
etc.
the Non performing assets is not acknowledged it would
Finding hinder the trade of the Banks. The Non-performing assets
The following findings were drawn from the above would abolish the recent profit, interest revenue due to
data analysis- large provisions of the Non-performing assets, and would
upset the smooth working of the reutilizing of the funds.
 SBI Bank shows high NPAs Ratio as compare to
HDFC Bank. To conclude this study we can say about this report, that

 High NPAs Ratio shows low credit portfolio of SBI  SBI Bank shows very much high NPA ratios as
Bank. compare to HDFC.

 In analysis HDFC low risk profile as compare to SBI  NPAs represent high level of risk & low level of
in terms of NPAs. credit appraisal.
 There are some certain guidelines made by RBI for
NPAs which are adopted by Banks.

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  HDFC is better in all terms than SBI. 6. HDFC Bank (2006-2015). Published Annual
Reports from 2006-07 to 2015-16. Website of
Suggestions
HDFC Bank. Ibrahim, M. (2014),
 The Banker should take utmost care by ensuring
7. A comparative performance of two Banks in United
that the enterprise or business for which a loan is
Arab Emirates, Research Journal of Finance and
sought is a sound one and the borrower is capable
Accounting, 5(21), 24-29.
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person of high integrity, credibility and good 8. Jha, S., Hui, X. (2012), A comparison of financial
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9. Punjab National Bank (2006-2015). Published
insurance policies for crop protection and income
Annual Reports from 2006-07 to 2015-16. Website
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 Banker should examine the balance sheet which
10. Comparative Analysis of Domestic and Foreign
shows the true picture of business will be revealed
Bank Operations in Bangladesh. The Global Journal
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Finance and Economics, 4 (1), 37-46.
While extending loans, Banks should examine the
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 The problem should be identified very early so that
SBI and ICICI Bank. International Journal of
companies can try their best to stop an asset or A/C
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