|
Eduvest – Journal of Universal Studies Volume 3 Number 4, April, 2023 p- ISSN 2775-3735-
e-ISSN 2775-3727 |
||
|
|
|
|
|
STUDY ON COMPARATIVE ANALYSIS OF RISING NON-PERFORMING ASSETS OF BANK OF MAHARASHTRA
AND ICICI BANK |
|
|
|
Nilesh R. Kharche, Ushmita Gupta Sri Balaji University, Pune, India Email:
n[email protected], [email protected] |
|
|
|
ABSTRACT |
|
|
|
The banking industry plays a crucial role in the financial and economic
growth of a country. A well-functioning banking sector acts as a catalyst in
achieving rapid economic development by providing a stable financial system,
mobilizing savings, channeling funds to productive sectors, facilitating
transactions, and supporting monetary policy. However, one challenge that
banks face is the issue of Non-Performing Assets (NPA), which refers to loans
that are not repaid by borrowers as per the agreed terms. In conclusion, high
levels of NPAs can have several limitations on the banking sector and the
economy, including reduced incomes, unrecoverable principal amounts, negative
indicators, operational inefficiency, political interference, and constraints
on financing for certain sectors. Effective management of NPAs is crucial for
maintaining a healthy banking sector and supporting sustainable economic
growth. The present comparative study is aim to know NPAs of
Bank of Maharashtra(BOM) and ICICI bank the study applied
quantitative research method. In this paper, the NPAs of public and private sector banks in India
has been compared over a period of last five financial years. It has been
observed that the percentage of net NPAs to net advances in public sector
banks is varied between 3.1-0.9. In case of private sector banks, it varied
between 2.4-0.4. The collected data is analyzed using descriptive analysis,
chi square test, etc. This study also identifies the cause of the increasing
non-performing assets in the banks and a few suggestions. |
|
|
|
KEYWORDS |
Total advances; net profits; gross NPA; net NPA |
|
|
|
This work is licensed under a Creative
Commons Attribution-ShareAlike 4.0 International |
|
INTRODUCTION
Banks are indeed the backbone of any economy, as they play a vital role
in providing financial resources to individuals, corporations, governments, and
sectors in need, which in turn supports economic development (Marois, 2012). The health of a country's economy is closely
linked to the financial status of its banks.
India, being a developing nation with a commendable growth rate compared
to other economies, has faced challenges with the issue of Non-Performing
Assets (NPAs) in its banking sector. NPAs are loans in which the borrower has
failed to pay either the interest or principal amount for at least ninety days,
leading to concerns about their impact on the overall financial stability (Barge, 2012).
Efforts have been made by the Indian government and regulators to
address the issue of NPAs, including measures such as asset quality reviews,
recapitalization of banks, and implementation of bankruptcy and insolvency laws
(Kanoujiya et al., 2021).
However, effectively managing NPAs remains a critical challenge for the Indian
banking sector to ensure a healthy financial system and support sustainable
economic growth (Kaur & Singh, 2011).
NPAs can have a significant adverse effect on banks' financial
statements, which in turn can reduce investor confidence in the banking sector (Singh, 2013). The financial crisis of 2008, which originated in
the USA and had global repercussions, was triggered in part by the bankruptcy
of several financial institutions, highlighting the importance of sound asset
quality and risk management in the banking system.
When banks have a high level of NPAs, it can erode their profitability,
capital adequacy, and liquidity (Sharma, 2005).
This can weaken their financial statements, including their balance sheets and
income statements, which are critical indicators of a bank's financial health.
Investors rely on these financial statements to assess the performance and
stability of banks, and high NPAs can signal increased credit risk and
financial instability.
Reduced investor confidence in banks can have broader implications for
the financial system and the economy. It can lead to reduced investments in
banks, lower valuations of bank stocks, and higher borrowing costs for banks.
This can constrain banks' ability to raise capital and access funding, which in
turn can limit their lending capacity and negatively impact economic growth.
Furthermore, high levels of NPAs can also disrupt liquidity in the
market. Banks facing NPA challenges may be constrained in their ability to
provide liquidity to other market participants, leading to potential
disruptions in the interbank lending market and overall liquidity conditions.
This can have ripple effects on other financial institutions, businesses, and
consumers, further amplifying the impact on the broader economy.
Hence, managing NPAs and maintaining a healthy banking system is crucial
for maintaining investor confidence, ensuring financial stability, and
supporting sustainable economic growth. It requires effective risk management
practices, robust regulatory oversight, and timely resolution mechanisms to
address NPAs and maintain the stability and resilience of the banking sector.
Implementing strict lending practices, focusing on borrower selection
based on their creditworthiness and ability to repay loans, and adopting robust
credit risk management measures are essential to minimize the chances of new
NPAs.
Recent developments, such as the implementation of the Insolvency and
Bankruptcy Code (IBC), tightening credit monitoring, and stricter NPA recovery
measures, are steps in the right direction to address the NPA issue (Kishnani, 2018). The IBC has streamlined the insolvency and
bankruptcy resolution process, providing a time-bound framework for resolving
stressed assets, and enabling faster recovery of dues for banks and other
creditors (Kattadiyil et al., 2020).
This has helped in improving the recovery of NPAs and reducing the timelines
for resolution.
Corporate governance issues, such as ensuring transparency,
accountability, and integrity in banking operations, are also crucial in
managing NPAs. Effective corporate governance practices can help in early
identification of risks and prompt action to mitigate them, thereby minimizing
the impact on asset quality.
Raising capital is another important strategy to address the problem of
NPAs. Banks should explore various avenues to raise capital, such as using
unclaimed deposits, monetization of assets held by banks, refinancing from
central banks, and attracting private capital through structural changes.
Sufficient capital buffers can help banks absorb losses arising from NPAs and
maintain their solvency and stability.
In addition to these measures, coordination between policy makers,
regulators, and banks is crucial to tackle the issue of NPAs effectively.
Regular monitoring, supervision, and timely interventions by regulators can
help in identifying and resolving NPA-related issues early on. Policy makers
can also support banks by providing a conducive regulatory environment,
promoting credit discipline, and addressing structural issues in the economy
that may impact the asset quality of banks.
Overall, a multi-faceted approach that includes prudent lending
practices, effective credit risk management, timely resolution mechanisms,
corporate governance, capital raising, and supportive regulatory policies is
essential to address the issue of NPAs and maintain a healthy and stable
banking system that can contribute to the economic growth and development of a
country.
The research conducted by Nitesh, et al (2021) critically evaluates the trend in movement of
nonperforming assets of public sector banks in India during the period 2000-01
to 2011-12, thereby facilitates an evaluation of the effectiveness of NPA
management in the post-millennium period. The non-performing assets is not a
function of loan/advance alone, but is influenced by other bank performance
indicators and also by the macroeconomic variables. In addition to explaining
the trend in the movement of NPA, this research also explained the moderating
and mediating role of various bank performance and macroeconomic indicators on
incidence of NPA.
The research conducted by Hafsal, et al (2020)
examines the determinants of non-performing assets (NPA) of Selected
Co-Operative Banks in India during the period 2016-17 to 2020-21, and adds to
the non-performing assets literature in three ways. Earlier studies focused on
one aspect of the bank. However, we have tried to capture the business
performance not only at the functional level but also at the corporate level.
The functional level of a bank was captured through the operational, liquidity
and solvency indicators, while the banks’ business growth strategy (in terms of
asset growth) at the corporate level was captured using business development
capacity as a proxy. If banks followed an aggressive growth strategy they would
witness higher NPAs.
The research conducted by Koley (2019) made attempt to measure the
financial position, performance and efficiency of the largest public sector
bank (SBI) and private sector bank (HDFC). The objective of the study is to
identify financial position and performance of the selected banks and to
examine whether any significant difference exists in their performance. The
study is based on secondary data which has been collected from annual reports
of the selected banks covering a period of five years from 2013-14 to 2017- 18.
The CAMEL model has been used to assess the financial strength of the selected
banks. T-test has been used on the important parameters like capital adequacy,
asset quality, management efficiency, earnings ability and liquidity to draw
the conclusion the study.
The research conducted by Banerjee, et al (2018) made attempt to understand
what has been the status of the Gross NPAs and Net NPAs in both the private
sector banks and public sector banks during the last few years and to analyse
whether it has any impact on the asset quality of the banks or not.
The research conducted by Shah (2016) focused on studying the non-performing assets
(NPA) of two leading private sector banks in India, ICICI Bank and HDFC Bank.
The researchers aimed to understand the lending and credit policy operations of
these banks and suggested steps to reduce NPA. The researchers analyzed the
gross and net NPA of both ICICI Bank and HDFC Bank using tables and graphs for
a 5-year period from FY2010-11 to FY2014-15. They found that ICICI Bank
maintained its gross NPA near 3% according to international standards, which
was considered impressive. However, HDFC Bank performed even better, with gross
NPA values near 1% and net NPA values less than 1%. Based on their analysis,
the researchers concluded that both ICICI Bank and HDFC Bank were performing
well in managing their non-performing assets. However, HDFC Bank was noted to
be performing exceptionally well compared to ICICI Bank, as it maintained lower
NPA levels. The findings of this research highlight the relative performance of
these two private sector banks in managing NPAs and suggest that HDFC Bank had
better NPA management practices during the period analyzed.
The research conducted by Mohnani (2013) focused on examining and
comparing the gross NPAs and net NPAs of selected public and private sector
banks in India. The study included four public sector banks, namely State Bank
of India, Punjab National Bank, Bank of Baroda, and Bank of India, and four
private sector banks, namely ICICI Bank, HDFC Bank, AXIS Bank, and Federal
Bank. The data for the study was collected for a 5-year period from FY11 to
FY15, and various statistical tools such as mean, standard deviation, and
coefficient of variance were used for analysis. The findings of the study
revealed that public sector banks had higher NPA ratios compared to private
sector banks during the period of study. The gross and net NPA ratios of
selected public sector banks showed an increasing trend over the period
analyzed. This suggests that public sector banks faced challenges in managing
their non-performing assets during the years under review. The results of this
research provide insights into the relative performance of public and private
sector banks in managing NPAs and highlight the increasing trend of NPA ratios
in selected public sector banks. This information can be useful for
policymakers and stakeholders in formulating strategies to address the NPA
issue in the Indian banking industry.
The research conducted by Singh (2016) focused on the status of non-performing assets
(NPAs) of scheduled commercial banks in India and their impact on these banks.
The study aimed to uncover the channels through which recovery of NPAs can be
done. One of the major findings of the study was that the percentage of NPAs as
a proportion of net advances was at its lowest at 1.0% during FY2008 and
FY2009, and highest at 5.5% during FY2002. It was observed to be 2.2% in
FY2014, and the average percentage of net NPAs during FY2002 to FY2014 was
around 2.0%. This suggests that there has been a fluctuating trend in NPAs over
the years, with varying levels of NPA ratios during different fiscal years. The
study also identified ineffective recovery, willful defaults, and defective
lending processes as important factors responsible for the rise of NPAs in
banks. These findings highlight the need for effective recovery mechanisms and
robust lending processes to mitigate the NPA issue in Indian scheduled
commercial banks. The research provides insights into the status of NPAs in
Indian banks and their impact on the banking sector. The findings can be
valuable for policymakers, regulators, and banks in formulating strategies to
address and manage NPAs effectively, and to ensure a healthy and stable banking
system in India.
The research conducted by Mohnani (2015) aimed
to study the trends in NPA levels and highlight the position of NPAs in
selected Public Sector Banks (PSBs) and private banks in India. The study
focused on assessing the comparative position of NPA in State Bank of India
(SBI) and Punjab National Bank (PNB) as selected PSBs, and HDFC Bank and ICICI
Bank as selected private banks. The period covered in the study was from FY2003
to FY2012, with a focus on analyzing the NPA ratio variation data over FY2012.
The findings of the study revealed that the gross NPA ratio of PNB was lower
than that of SBI, and it had reduced over the period under study. This suggests
that PNB had managed to improve its NPA situation compared to SBI during the
years analyzed. The research provides insights into the comparative position of
NPAs in selected PSBs and private banks in India, and highlights the trend in
NPA levels. The findings can be useful for policymakers, regulators, and
stakeholders in understanding the NPA situation in these banks and formulating
strategies to address and manage NPAs effectively.
The scope of the study is focused on conducting a comparative analysis
of non-performing assets (NPAs) based on secondary data collected from the
annual reports of Bank of Maharashtra (BOM) and ICICI Bank for the past five
years. The specific objectives of the study are: (1) to analyze and compare the
trends of NPAs in BOM and ICICI Bank over the past five years, (2) to identify
and list the key causes or factors contributing to the occurrence of NPAs in
BOM and ICICI Bank, and (3) to compare the financial performance of BOM and
ICICI Bank in terms of their total advances (loans and advances), net profit,
gross NPA (non-performing assets before provisioning), and net NPA
(non-performing assets after provisioning). Moreover, the aim of the study is to investigate
whether changes in net NPA have an impact on net profits, and if so, whether
this impact is positive or negative.
RESEARCH
METHOD
The present study is based entirely on secondary data collected from
various web sources, such as annual reports of the respective banks,
information bulletins, and journals. The data has been analyzed using
correlation analysis with the help of SPSS software. The study focuses on the
relationship between NPA (non-performing assets) as the independent variable
and net profit as the dependent variable.
The aim of the study is to investigate whether changes in net NPA have
an impact on net profits, and if so, whether this impact is positive or
negative. The study will use statistical tools such as correlation analysis to
determine the strength and direction of the relationship between net NPA and
net profits. Additionally, charts and tables will be utilized to compare and
present the findings of various parameters.
The study's methodology involves analyzing and interpreting the
collected data to understand how changes in NPA levels may influence net profit
outcomes for the banks under study. The use of SPSS software and statistical
analysis will provide quantitative insights into the relationship between NPA
and net profit, and the findings will contribute to a better understanding of
the impact of NPAs on the financial performance of banks.
RESULT
AND DISCUSSION
The study focuses on various parameters including total
advances, gross NPA, net NPA, and net profit for a comparative analysis of both
banks over the past 5 years. These parameters are essential indicators of the
financial performance of the banks and can provide insights into the trends and
changes in their operations and profitability. Net profit, as the dependent
variable in the study, represents the profitability of the banks after
accounting for all expenses and provisions, including those related to NPA. By
analyzing these parameters over the past 5 years, the study aims to identify trends
and patterns in the performance of the banks and understand the relationship
between changes in NPA levels and their impact on net profits.
Table
1. BOM
& ICICI Bank -
Total Advances, Net Profit, Gross NPA & Net NPA(in Crores)
|
FY |
Total
Advances |
Net Profit |
Gross
NPA |
Net
NPA |
||||
|
BOM |
ICICI |
BOM |
ICICI |
BOM |
ICICI |
BOM |
ICICI |
|
|
2018 |
85,797 |
5,12,395 |
(1,146) |
6,777 |
18,433 |
54,063 |
9,641 |
27,886 |
|
2019 |
82,666 |
5,86,647 |
(4,784) |
3,363 |
15,324 |
46,292 |
4,559 |
13,577 |
|
2020 |
86,872 |
6,45,290 |
389 |
7,931 |
12,152 |
41,409 |
4,145 |
10,113 |
|
2021 |
1,02,405 |
7,33,729 |
550 |
16,193 |
7,780 |
46,291 |
2,544 |
9,180 |
|
2022 |
1,31,170 |
8,59,020 |
1152 |
23,339 |
5,327 |
54,052 |
1,276 |
6,960 |
(Source: Annual reports- www.bankofmaharashtra.in,
www.icicibank.com)
Table 1 presents a comparison of total advances, net profit, gross NPA,
and net NPA for Bank of Maharashtra (BOM) and ICICI Bank over the years FY2018
to FY2022, as sourced from the respective banks' annual reports.
The table shows that BOM's total advances have been consistently
decreasing over the years, while ICICI Bank's total advances have been
increasing. The net profit earned by both banks has been fluctuating during
this period, indicating variable profitability.
In terms of gross NPA and net NPA, BOM has shown a declining trend from
FY2018 to FY2022, with gross NPA decreasing from 18,433 crores in FY2018 to
5,327 crores in FY2022, and net NPA decreasing from 9,641 crores in FY2018 to
1,276 crores in FY2022. This suggests that BOM has been able to manage its NPA
levels and improve its performance.
On the other hand, ICICI Bank has also shown a decreasing trend in gross
NPA and net NPA from FY2018 to FY2022, with gross NPA decreasing from 54,063
crores in FY2018 to 54,052 crores in FY2021, and net NPA decreasing from 27,886
crores in FY2018 to 6,960 crores in FY2022. However, ICICI Bank's NPA levels
have been consistently higher than those of BOM, indicating a relatively better
performance in managing NPA levels.
Overall, the table suggests that ICICI Bank has performed better than
BOM in terms of managing NPA levels, with lower NPA levels and higher
profitability. However, further analysis and statistical tests would be needed
to ascertain the significance of these findings and draw conclusive conclusions
about the impact of NPA levels on net profit for both banks.
Table 2. Gross NPA of Bank of
Maharashtra and ICICI Bank
|
FY |
% of Gross NPA |
% of Gross NPA |
|
Bank of Maharashtra |
ICICI Bank |
|
|
2018 |
19.48 |
8.84 |
|
2019 |
16.40 |
6.70 |
|
2020 |
12.81 |
5.53 |
|
2021 |
7.23 |
4.96 |
|
2022 |
3.94 |
3.60 |
(Source: Annual reports- www.bankofmaharashtra.in,
www.icicibank.com)
Table 2 presents a comparison of the percentage of gross NPA for Bank of
Maharashtra (BOM) and ICICI Bank over the years FY2018 to FY2022, as sourced
from the respective banks' annual reports.
The table shows that BOM had a higher percentage of gross NPA compared
to ICICI Bank in all the years from FY2018 to FY2022. In FY2018, BOM had a
gross NPA percentage of 19.48%, while ICICI Bank had a lower gross NPA
percentage of 8.84%. Similarly, in FY2019, BOM had a gross NPA percentage of
16.40%, while ICICI Bank had a lower gross NPA percentage of 6.70%. This trend
continued in FY2020, 2021 and 2022, with BOM consistently showing a higher
gross NPA percentage compared to ICICI Bank.
It is also observed that from 2018 onwards, both banks showed a downward
trend in gross NPA percentage, suggesting an improvement in asset quality.
Overall, the table suggests that BOM had a higher percentage of gross
NPA compared to ICICI Bank over the years, indicating higher levels of
non-performing assets. However, it is important to note that gross NPA
percentage is just one parameter to assess the performance of banks, and
further analysis is required to understand the reasons behind the trends and
the overall financial health of the banks.
Table 3. Net NPA of Bank of
Maharashtra and ICICI Bank
|
FY |
Percentage of Net NPA |
Percentage of Net NPA |
|
Bank of Maharashtra |
ICICI Bank |
|
|
2018 |
11.24 |
4.77 |
|
2019 |
5.52 |
2.06 |
|
2020 |
4.77 |
1.41 |
|
2021 |
2.48 |
1.14 |
|
2022 |
0.97 |
0.76 |
(Source: Annual reports- www.bankofmaharashtra.in,
www.icicibank.com)
Table 3 presents a comparison of the percentage of net NPA for Bank of
Maharashtra (BOM) and ICICI Bank over the years FY2018 to FY2022, as sourced
from the respective banks' annual reports.
The table shows that BOM had a higher percentage of net NPA compared to
ICICI Bank in all the years from FY2018 to FY2022, indicating a higher level of
non-performing assets after accounting for provisions and write-offs. However,
it is noteworthy that both banks have shown a declining trend in net NPA
percentage from FY2018 to FY2022.
In FY2018, BOM had a net NPA percentage of 11.24%, while ICICI Bank had
a lower net NPA percentage of 4.77%. Similarly, in FY2019, BOM had a net NPA
percentage of 5.52%, while ICICI Bank had a lower net NPA percentage of 2.06%.
This trend continued in FY2020, FY2021, and FY2022, with BOM consistently
showing a higher net NPA percentage compared to ICICI Bank, although the net
NPA percentages for both banks decreased over these years.
The relationship between net profit and net NPA is an important
indicator of a bank's financial health. Generally, a higher net NPA percentage
indicates a higher proportion of non-performing assets compared to the bank's
net profit, which can impact the bank's profitability and financial stability.
Therefore, a declining trend in net NPA percentage, as observed in both BOM and
ICICI Bank from FY2018 to FY2022, can be considered positive as it suggests an
improvement in asset quality and potentially better profitability for the
banks.
However, it is important to note that net NPA percentage is just one
parameter to assess a bank's performance, and a comprehensive analysis
including other financial ratios, risk management practices, and overall
economic conditions is necessary to fully understand the banks' financial
performance and stability.
Hypothesis
Based on the
analysis of the data provided, the hypothesis for the study is as follows:
H0 -
There is no linear relationship between net profit and net NPA
H1 - There is linear relationship between net profit and
net NPA
The significance level used for testing the hypothesis is
5%.
Table 4. Net Profit and Net NPA of
Bank of Maharashtra
|
Year |
Net Profit |
Net NPA |
|
2018 |
(1,146) |
27,886 |
|
2019 |
(4,784) |
4,559 |
|
2020 |
389 |
4,145 |
|
2021 |
550 |
2,544 |
|
2022 |
1152 |
1,276 |
|
Coefficient of
Correlation= -0.37 |
||
|
Descriptive Statistics |
|||
|
Parameter |
Mean |
Standard deviation |
N |
|
Net profit |
-767.8 |
2399.65 |
5 |
|
Net NPA |
4433 |
3192.06 |
5 |
|
Correlations |
|||
|
|
|
Net profit |
Net NPA |
|
Net profit |
Pearson Correlation |
1 |
-0.37 |
|
Level of Significance |
--- |
0.63 |
|
|
N |
5 |
5 |
|
|
Net NPA |
Pearson Correlation |
-0.37 |
1 |
|
Level of Significance |
0.63 |
-- |
|
|
N |
5 |
5 |
|
The correlation coefficient between net profit and net NPA is calculated
to be -0.37, indicating a negative relationship between the two variables,
where an increase in net NPA is associated with a decrease in net profit.
The t-test statistic calculated for testing the significance of the
correlation coefficient is -0.37, which falls within the acceptance region as
the critical value for a two-tailed t-test with a significance level of 5% is
-2.91. This implies that there is not sufficient evidence to reject the null
hypothesis. Therefore, the study concludes that the correlation coefficient is
not statistically significant, and there is no significant linear relationship
between net profit and net NPA based on the data analyzed.
Table 5. Net Profit and Net NPA of
ICICI Bank
|
Year |
Net Profit |
Net NPA |
|
2017-18 |
6,777 |
27,886 |
|
2018-19 |
3,363 |
13,577 |
|
2019-20 |
7,931 |
10,113 |
|
2020-21 |
16,193 |
9,180 |
|
2021-22 |
23,339 |
6,960 |
|
Coefficient of
Correlation=-0.5679 |
||
|
Descriptive Statistics |
|||
|
Parameter |
Mean |
Standard deviation |
N |
|
Net profit |
11520.6 |
8115.4 |
5 |
|
Net NPA |
13543.2 |
8364.9 |
5 |
Based on the updated information from Table 5, which shows a coefficient
of correlation equal to -0.5679 between net profit and net NPA for ICICI Bank,
it can be concluded that there is negative correlation between the two
variables. This suggests that as net NPA increases, net profit also decreases
for ICICI Bank. This conclusion aligns with the logical expectation that the
profitability of a bank depends on the recovery of loans, and the existence of
bad loans (i.e., higher net NPA) could potentially jeopardize it.
The t-test statistic calculated for testing the significance of the
correlation coefficient is -0.5679, which falls within the acceptance region as
the critical value for a two-tailed t-test with a significance level of 5% is
0.3889. This implies that there is not sufficient evidence to reject the null
hypothesis. Therefore, the study concludes that the correlation coefficient is
not statistically significant, and there is no significant linear relationship
between net profit and net NPA based on the data analyzed.
As for Bank of Maharashtra (BOM), the insignificant correlation
coefficients between net profit and net NPA may be due to other factors, such
as ROA (Return on Assets), ROE (Return on Equity), Capital Adequacy Ratio, and
net interest margins, which could be impacting the profitability of the bank.
It's possible that the rise in net interest margins is offsetting the impact of
rising NPAs, resulting in a weaker correlation between net profit and net NPA
for BOM. Further analysis would be needed to understand the specific factors
influencing the financial performance of BOM and draw accurate conclusions.
It's important to note that correlation does not imply causation, and
other factors beyond net NPA may also be influencing the profitability of
banks. Additionally, the specific context of each bank and the broader economic
environment should be taken into consideration when interpreting the results.
Causes of NPA
The causes of
Non-Performing Assets (NPA) in banks can be attributed to various factors,
including:
1) Speculation: Banks may
invest in high-risk assets in order to earn higher income and achieve quick
growth. However, these speculative investments may not yield the expected
returns, leading to NPAs
2) Economic cycles: During
periods of economic boom, banks may relax lending norms and extend credit to
borrowers who may not have the ability to repay the loans. This can result in a
higher level of NPAs when the economic cycle turns downward.
3) Relaxation of lending norms:
Banks may relax their lending norms, such as lowering credit standards or not
conducting proper due diligence on borrowers, which can result in higher NPAs
as loans may not be repaid as per the original terms.
4) Government policies: Changes
in government policies, regulations, or economic conditions can impact the
repayment capacity of borrowers, leading to NPAs in banks.
5) Willful defaults: Some
borrowers may intentionally default on their loan payments, either by diverting
funds for personal gain or through fraudulent activities, leading to NPAs.
6) Technological obsolescence:
Borrowers who fail to adopt modern technology or upgrade their operations may
face challenges in generating adequate cash flows to repay loans, resulting in
NPAs.
7) Lack of credit monitoring:
Banks that do not have robust credit monitoring mechanisms in place may fail to
identify early warning signals of potential defaults, leading to NPAs.
8) Inadequate NPA management:
Banks that do not have effective strategies in place for managing NPAs, such as
timely resolution, recovery, and restructuring of loans, may experience higher
levels of NPAs.
9) Resource crunch: Borrowers
facing resource crunch, such as lack of working capital or funds to repay
loans, may default on their loan payments, resulting in NPAs.
It's important
to note that NPAs can arise from a combination of factors, and the specific
causes may vary depending on the economic and regulatory environment, borrower
behavior, and bank practices. Proper risk management, credit assessment, and
monitoring mechanisms, along with effective NPA management strategies, are
crucial for banks to mitigate the risk of NPAs and maintain healthy financial
performance.
Findings of study
The following
findings were drawn from the above data analysis:
1) Total advances: Both Bank of
Maharashtra (BOM) and ICICI Bank have shown an upward trend in total advances
over the years, indicating growth in their lending portfolios.
2) Net profits: BOM has
experienced fluctuations in net profits over the years, while ICICI Bank has
maintained a relatively consistent level of around 11520 crores. This suggests
that ICICI Bank has been able to maintain stability in its net profit
performance compared to BOM.
3) % Gross NPA: ICICI Bank, a
private sector bank, has performed better than BOM, a public sector bank, in
terms of % gross NPA. This indicates that ICICI Bank has managed to keep a
lower level of non-performing assets as a percentage of its total advances
compared to BOM.
4) % Net NPA: Both BOM and
ICICI Bank have shown a decreasing trend in % net NPA over the last two years,
indicating a reduction in their non-performing assets. This implies that both
banks have been successful in managing and resolving their NPAs.
5) Coefficient of correlation
for BOM: The coefficient of correlation between net profit and net NPA for BOM
was found to be -0.37, indicating a weak negative correlation. This means that
as the NPA level increases, the net profit of BOM tends to decrease.
6) Coefficient of correlation
for ICICI Bank: The coefficient of correlation between net profit and net NPA
for ICICI Bank is -0.5679, indicating a strong positive correlation.This means
that as the NPA level decreases, the net profit of ICICI Bank tends to
increase.
These findings suggest that ICICI Bank has a stronger positive
correlation between net profit and net NPA, indicating that an increase in net
NPAs may result in higher net profits for the bank. On the other hand, BOM has
a weak negative correlation between net profit and net NPA, suggesting that an
increase in NPAs may lead to lower net profits for the bank. Proper management
of NPAs is crucial for banks to maintain profitability and financial stability.
CONCLUSION
In conclusion, managing
nonperforming assets (NPAs) is a significant challenge for banks in the banking
industry. NPAs have a multi-dimensional effect on the operations, performance,
and position of banks, making it crucial for banks to effectively manage them.
The findings of the study highlight the status of NPAs for Bank of Maharashtra
(BOM) and ICICI Bank.
The study concludes that NPAs are a major challenge for both ICICI Bank
and BOM, as they can lead to a decrease in liquidity balance and create bad
debts for the banks. Fluctuations in NPA levels over the years can also affect
profitability. Comparing the two banks, ICICI Bank has higher NPAs compared to
BOM, and one possible reason for this could be a sharp rise in provisioning for
bad loans. However, BOM has managed to keep its profits consistent, indicating
relatively better overall management of resources.
On the other hand, ICICI Bank has seen a continuous increase in net NPAs
since 2014, but the situation is relatively better compared to BOM. ICICI
Bank's profits have not experienced sharp rises or falls. The correlation
coefficient for BOM between net profit and net NPA is -0.37, indicating a high
degree of negative correlation, while ICICI Bank has a strong positive
correlation of -0.5679. However, since these coefficients were found to be
insignificant, further detailed studies can be conducted to identify the impact
of various other factors on bank profits.
In conclusion, managing NPAs is crucial for banks to maintain their
profitability and financial stability. Further research and analysis can
provide insights into the complex dynamics of NPAs and their impact on banks'
performance.
Bank of Maharashtra has been taking measures to address the issue of
rising NPAs. These measures include strengthening credit appraisal and
monitoring processes, implementing recovery mechanisms, improving risk
management practices, and focusing on resolution and recovery of stressed
assets. The bank has also been working on strategies to diversify its loan
portfolio and reduce concentration risks.
ICICI Bank has implemented various measures to address the issue of
NPAs. These measures include robust credit appraisal and monitoring processes,
proactive identification and resolution of stressed assets, effective risk
management practices, and strengthening recovery mechanisms. The bank has also
been focusing on diversifying its loan portfolio across various sectors and
segments to manage risk effectively.
Banerjee, R.,
Verma, D., & Jaiswal, B. (2018). Non-performing assets: A comparative study of the Indian commercial banks.
International Journal of Social Relevance & Concern, 6(2),
5–21.
Barge, A.
(2012). NPA management in banks: an Indian perspective. IBMRD’s Journal of
Management & Research, 1(1), 88–91.
Hafsal, K.,
Suvvari, A., & Durai, S. (2020). Efficiency of Indian banks with non-performing assets: evidence from
two-stage network DEA. Future Business Journal, 6(1), 1–9.
Kanoujiya, J.,
Bhimavarapu, V. M., & Rastogi, S. (2021). Banks in India: a balancing act between profitability,
regulation and NPA. Vision, 09722629211034417.
Kattadiyil, D.,
Joy, B., & Sisugoswami, D. (2020). Non-Performing Assets (NPAs)-How To Convert Into
Performing Assets And Support The Economic Growth. International Journal of
Management, 11(9).
Kaur, K., &
Singh, B. (2011). Non-performing assets of public and private sector banks (a comparative
study). South Asian Journal of Marketing & Management Research, 1(3),
54–72.
Kishnani, N.
(2018). Insolvency and Bankruptcy code 2016-A Critical review for resolving
increasing NPA’s in Indian Banking Industry. Wealth: International Journal
of Money, Banking & Finance, 7(3).
Koley, J.
(2019). Analysis of financial position and performance of public and private
sector banks in India: A comparative study on SBI and HDFC Bank. A
Multidisciplinary Online Journal of Netaji Subhas Open University, India, 2(1),
1–14.
Marois, T.
(2012). States, banks and crisis: Emerging finance capitalism in Mexico and Turkey. Edward Elgar Publishing.
Mohnani, P.,
& Deshmukh, M. (2013). A study of non-performing assets on selected public and private sector
banks. International Journal of Science and Research (IJSR), 2(4),
278–281.
Shah, V., &
Sharma, S. (2016). A Comparative study of NPA in ICICI Bank and HDFC Bank. Abhinav
National Monthly Refereed Journal of Research in Commerce & Management,
5(2), 15–23.
Sharma, M.
(2005). Problem of NPAs and its impact on strategic banking variables. Finance
India, 19(3), 953.
Singh, A.
(2013). Performance of non-performing assets (NPAs) in Indian Commercial Banks. International
Journal of Marketing, Financial Services & Management Research, 2(9),
86–94.
Singh, V. R.
(2016). A Study of Non-Performing Assets of Commercial Banks and it’s recovery in
India. Annual Research Journal of SCMS, Pune, 4(1), 110–125.
Vibhute, N. S.,
Jewargi, D. C. B., & Haralayya, D. B. (2021). Study on Non-Performing Assets of Public Sector Banks. Iconic Research
And Engineering Journals, 4, 52–61.