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| A Comparative Study on The Non-Performing Assets Management of PNB and ICICI Bank | |||||||
| Paper Id :
16644 Submission Date :
04/11/2022 Acceptance Date :
16/11/2022 Publication Date :
21/11/2022
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| Abstract | Private and state-owned banks both play an important part in the economy of India. They were the earliest kind of banking and were responsible for a significant number of transactions that were spread out across a big region. The growth of India's economy is inextricably linked to the success of its banking industry. These days, non-performing assets, often known as NPAs, are a significant problem for financial institutions like banks. The issue of non-performing assets is a source of special worry for financial organisations (NPAs). The bank's bottom line is being negatively impacted by its nonperforming assets (NPAs). The increase in nonperforming assets necessitated the creation of further provisions, which had a deleterious impact on the company's profitability. Through the use of secondary data collection, this study investigates the management of non-performing assets at PNB and ICICI Bank. The term "non-performing assets," abbreviated as "NPAs," is becoming more common in banking, and the purpose of this article is to analyse the factors that are contributing to this trend and provide some solutions. | ||||||
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| Keywords | NPA, Gross NPA, Net NPA, Gross Advance, Profit. | ||||||
| Introduction |
It is very necessary to have a robust banking sector in order to have a healthy economy. One of the most fundamental tasks that banks are responsible for is taking deposits and granting loans. It involves allocating financial resources so that the nation's expansion and improvement may take place. The failure of the banking industry has implications for other sectors of the economy as well. Nonperforming assets are a significant cause for concern for all banks in today's environment.
An elevated level of nonperforming assets, often known as NPAs, may have a negative impact not just on a bank's earnings but also on its net worth and asset quality. When principle and interest are due on an asset but are not collected, the quality of the asset is referred to be non-performing (NPAs).
STRUCTURE OF THE NPA
Non-performing assets, sometimes referred to as NPAs, are assets that have not been able to meet the provisioning requirements for their interest or principal payments in a timely way. These assets are considered to be non-performing assets.
When either the principal or the interest payments on the loan are late or not paid at all, the status of the debt is referred to as being "in default." The borrower is considered to be in default on the loan when the lender violates the terms of the loan agreement and the borrower seems unable to meet or fulfil his duties as outlined in the agreement. Gross and net nonperforming assets (NPAs) are the two different classifications that nonperforming assets (NPAs) may fall into.
Advances that are deemed to be unrecoverable, for which a bank has made a provision, but which are still preserved in the bank's accounting record are referred to as "gross non-performing assets" (NPAs). This phrase comes from the banking industry and stands for "net non-performing assets." This provision was created since the bank anticipates that the loans would not be recouped, hence this phrase derives from the abbreviation NPA, which stands for "non-performing assets." To put it another way, it is the entire worth of all non-standard assets, which includes assets that are doubtful, assets that have experienced losses, and assets that do not satisfy standard standards. In other words, it is the value of all assets that do not conform to standard requirements. The amount remaining after the bank deducts the provision for nonperforming assets in order to arrive at the net balance of nonperforming assets.
Net nonperforming assets (NPA) indicate banks' genuine burden. In order to comply with the standards set out by the central bank, Indian banks are required to make significant provisions for NPAs. This is due to the fact that it takes longer to recover and write off debts in India, and that bank balance sheets include a significant amount of assets that are not functioning as expected (NPAs). This is the reason.
REASONS OF NPAs
Consumers not being careful and choosing activities that aren't right for them.
Weak credit assessment techniques or systems.
Illness in the workplace.
Poor management of borrowers.
Poor loan management and supervision.
Insufficient attention or follow-up from financial institutions such as banks.
A sluggish or stalled economy overall. |
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| Aim of study | 1. To investigate the changes in NPA that have occurred at PNB and ICICI over the last several years. 2. The goal of this research is to determine the extent to which NPA influences performance. 3. To evaluate whether financial institution is superior to others in the management of its nonperforming assets (NPAs). 4. To have a better understanding of the factors that contribute to NPAs. Scope of the Study 1. The results of this research may help banks better their current financial situations or increase the amount of money they bring in. 2. One possible use for this study is to evaluate the performance of the bank. 3. This study has the potential to also reveal the factors that are causing the increase in NPAs. 4. This study also gives light on how nonperforming assets (NPAs) influence the profitability of banks. | ||||||
| Review of Literature | Saji Thazhungal Govindan Nair (2021) The CAMELS rating model of financial analysis is thought to be more effective in establishing precise risk assessment systems, developing and monitoring quality performance, identifying issues and addressing deficiencies than other methods for assessing the financial performance of banks that are currently available. Aparna and Sanjeev's (2018) research investigates the effect that the governing body has on the performance of India's public sector banks. It has come to everyone's attention that the number of meetings held and the number of persons who attended those meetings both have an effect on the effectiveness of the nation's public sector banks. There is a significant correlation between the number of meetings that take place and the overall success of the bank. According to study conducted by Jeyanthi and Divya (2019), both the risk and reward associated with investing in the stock market are consistently high. Because of this, it is very necessary for every investor to devise plans in order to make the most of investment opportunities on the market and, as a result, to earn a profit from these opportunities. According to Chatterjee, Mukherjee, and Das's research, academics have come to the conclusion that financial institutions should investigate the fundamental motivations that borrowers have for requiring loans as a result of research on the management of non-performing assets. This has led to the conclusion that financial institutions should explore the fundamental motives that borrowers have for requiring loans (2012). In addition to ensuring that the guarantor can be properly identified and checking any paperwork that may be pertinent, the bank should also conduct an in-depth investigation into the wealth of the individual who is giving the guarantee for the loan. In preparation for the loan, this is very well recorded, and so are the applicable rules and laws. According to Dr. Poonam Mahajan (2014), "the study indicates that the situation of NPAs in India is improving." Despite the fact that there has been a general decline in the number of NPAs over the course of the study period, the proportion of non-performing assets held by public sector banks has remained significantly higher than that of other institutions. Top management in the private and international banking sectors outperform top management in public sector banks in terms of professionalism, core competency, and speciality expertise. They may thus develop strategies for recovering money due to them by borrowers (both persons and institutions) with greater ease. According to Chaudhary and Sharma's (2011) study, Performance of Indian Public Sector Banks and Private Sector Banks: A Comparative Study, it is essential to create systems that are both suitable and strict in order to reduce non-performing loans (NPA). It is advised that a MIS be created that is both effective and efficient. Bank employees who are authorised to issue advances must be knowledgeable about the required documentation, technologically savvy, and motivated to do so in order to avoid advances from becoming non-performing assets. If public sector banks are to compete with commercial banks, they must concentrate on operations and nonperforming assets (NPAs). Banks must use extraordinary vigilance when choosing loans or projects and examining financial data. According to Bhatia, the results of his inquiry are as follows: (2007), The book titled "Nonperforming Assets of Indian Public, Private, and Foreign Sector Banks: An Empirical Assessment" explores the NPAs that are held by Indian banks that are located in the public sector, the private sector, and the foreign sector in the appropriate order. An analysis of a bank's nonperforming assets, which is also sometimes referred to as NPAs, is undertaken in order to identify how well a bank is doing in general and to evaluate the bank's overall financial health. This is done by performing an evaluation of the bank's nonperforming assets. This assessment has been completed. The overall quantity of loans that are considered to be nonperforming has a significant impact on the capacity of the whole banking system to maintain its financial stability, as well as the growth of the banking system itself (NPAs). This article presents the results of an investigation into the plethora of circumstances that contribute to bank loans not being returned, and it does so here. According to Mistry and Savani's article from 2015, the goals of this research were to investigate and classify Indian private division banks according to the monetary characteristics that differentiate them from one another, as well as to evaluate how effectively these banks manage monetary-related operations. In addition, the article states that the purpose of this study was to determine how effectively these banks manage monetary-related operations. They came to the conclusion that there is a positive correlation between resource utilisation and resource estimation, but that there is a negative association between return on resources and operational productivity. |
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| Methodology | Both the primary and secondary data that were examined in a prior inquiry will serve as the basis for the examination that is now being carried out. In addition to yearly reports generated by a number of distinct financial organisations, the material was assembled from a wide variety of web sources originating from a variety of different fields. The job of undertaking an analysis of the data that was acquired required the use of statistical techniques and trend analysis as the primary methods of analysis. Tables are often used in order to make the presentation of data in a fashion that is seen as being legitimate. A graphical depiction has also been given for your viewing and to aid you in achieving a better knowledge of the content that has been delivered in this article. |
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| Statistics Used in the Study |
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| Analysis | It is evident from the following statistics that Net Profit in ICICI Banks is steadily growing, from 9100 in 2017-18 to 25784 in 2021-22, whereas Profit in PNB is not constant, varying from a loss of -12824 in 2017-18 to a profit of 3676 in 2021-22. This contrasts with the growth of Net Profit in ICICI Banks, which is steadily growing from 9100 in 2017-18 to 25784 in 2021-22. This disparity in profitability may be ascribed to the fact that ICICI Banks are more focused on spending their money in technology developments. This disparity might be explained by the fact that ICICI Banks has been more effective in growing their wealth via investment of their customers' money. When compared with the percentage of non-performing assets held by ICICI Bank, the proportion of non-performing assets held by PNB is greater, both in rapports of gross and net NPA. As a direct result of this, we are able to arrive to the realisation that ICICI Bank's profitability and its management of non-performing assets (NPAs) are superior to those of PNB Bank. The capital adequacy ratio of ICICI Bank is much higher when measured against that of PNB Bank. This lends even more credence to the idea that ICICI Bank's management is of a better calibre than other banks'. PNB Bank's non-performing assets, often known as NPAs, should be a source for worry for the firm because of the detrimental effect they have on the bank's profitability. This is clear from the fact that the banks' gross nonperforming assets (NPA) and net NPA from the prior year's data are practically similar to one another.
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| Findings | The data analysis that was done above led to the development of the following findings: Why PNB Bank has a larger percentage of non-performing assets compared to ICICI Bank, and the analysis reveals that large NPA increases are caused by priority sectors that are suggested by the government. • The ratio of capital adequacy at PNB is lower than that at ICICI Bank. • There has been a general upward trend in advances granted by both of the banks. • Over the course of the last many years, the net profits of PNB have varied, whilst those of ICICI Banks have remained reasonably stable at roughly 7,500 crores. The performance of the private sector bank ICICI is much better than that of the public sector bank PNB Bank in terms of the percentage of gross nonperforming assets. ICICI bank also performs significantly better than PNB bank in terms of the percentage of net nonperforming assets. | ||||||
| Conclusion | According to the conclusions of the research, the most significant challenge that ICICI Bank and Panjab National Bank are up against is their high proportion of non-performing assets. It is irrelevant whether or not the two firms are rivals in the same market sector (in this case, the banking industry). The presence of these assets causes a reduction in the amount of liquid assets held by banks, which, in turn, leads to the creation of subprime loans, which in turn causes the repercussions discussed earlier. The number of loans that are not being returned on time has been gradually increasing over the course of the past few years, which has led to a loss in the profitability of each of these financial institutions due to the fact that more loans are not being repaid on time. PNB has a greater quantity of non-performing assets (NPAs) than ICICI Bank has; the latter is referred to as "NPAs." The examination of the differences and similarities across the banks led to the discovery of this result. It is clear that PNB's management is not getting any better since the bank is unable to keep its profitable status stable. The fundamental reason for this issue is that, as of late, the bank's non-performing assets as a percentage of its total assets have been rising. This is the main cause of the issue. Since 2017–2018, the total amount of net nonperforming assets that ICICI bank has been holding has been steadily reducing year after year. This pattern persisted throughout the second year of the bank's operation. They are in a position that is far stronger than PNB is at the moment. Since it was first established, ICICI Bank has had a great deal of success. The problem with the PNB Bank is that the money generated from its assets is not sufficient to cover its operational expenditures. This presents a challenge for the bank. If banks were to overlook the management of their non-performing assets, it would be disastrous to their operations. | ||||||
| Suggestions for the future Study | Before issuing a loan, the banker must ensure that the client is honest, reliable, and trustworthy; that the firm or business requesting the loan is healthy; and that the customer can effectively do business. The lender must also verify that the organisation or business requesting the loan is financially stable. A banker must review the balance sheet, which, together with a profit-and-loss analysis, gives a complete picture of the firm. Financial organisations must assess loan demand and purpose before giving the loan. Businesses and financial institutions must identify the issue early on to prevent assets from becoming nonperforming assets (NPAs) and recover NPAs. Before issuing credit, each financial institution must have its own in-house credit scoring and training agency to educate personnel and assess consumer affordability. |
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