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Banking sector is a major determinant of nation wealth. Their vital role in promoting and boosting the sustainability and efficiency of a country’s economy is undeniable. Being such an essential element of a country’s economy it becomes even more crucial to keep a check on the growth and wellbeing of banking sector, for maintaining the hopes and confidence of their investor and to keep them loyal and guarded. The growth and performance of banks determines how willing the customers and investors are to stay connected with them. And in compliance to this, the performance of the banks in all the sectors as well as worldwide is of paramount importance.

A trouble free working of banking sector is like a euphemism for a healthy report card of the entire economy. In this whole scenario of depositing money and ending loans, banks create credits and receive funds from different borrowers and investors in the form of interest of principal amount. However if a borrower fails to repay his borrowed amount it becomes a non performing assets this not only disables the interest earnings of the banks but also cripples the banks in recovering the principal capital. The way RBI defines non-performing assets is, that these are the assets where principal amount and interest both remain overdue for a period of 90 days or more. Furthermore, RBI has classified these assets in three categories in their decreasing order of quality, namely, substandard asset (where asset remains an NPA for a periods of 12 months or less), doubtfulassets (where it remain NPA for more than 12 months) and finally loss assets (losses that need to be fully written off). A collective combination of all these assets forms the overall NPA of a bank. And a high amount of NPA disrupts the functioning of banks and their profitability and credit growth are adversely affected. Additionally, it leads to increase in carrying cost of banks which further drains out their profitability. Increase in NPA level of banks force them to incur extra operating cost as an additional spending in the form of monitoring these assets and loan which otherwise could have been used for more profitable and productive purpose (Berger and Young). High operation cost would lower the lending efficiency of the banks, thus reducing their cost efficiency and therefore profitability.

Increment in poor loans has no doubt a damaging effect on banking industry. To control all these menace and to check the liquidity of various banks different corrective measures are continuously taken by our government and RBI. Yet over and again these sectors face a major setback because of one or the other glitches. One of these major issues is the crisis related to NPA. Indian history has recorded two major episodes of financial crisis because of non-performing assets. One was during 90’s and the recent one was in 2014-15. Although the two incident might seem to cause an identical kind of effect on the country’s economy, however the damage done by the latest crisis on the financial health of banks was much severe than the previous one. These growing loan crises create a major stress in banking sector. Analyzingthe need of present times RBI has been taking required corrective measures to lower the burden. Lokadalats, debt recovery tribunals, insolvency and bankruptcy code 2016 has been introduce to manage the NPAs, special mention account SMA (SMA0, SMA1, SMA2) has been introduced. Further, stress asset management verticals were set up to recapitalize public sector banks.However, growing incidents of net performing assets has still remained a major concern for the banks even after implementation of various corrective measures and policies. The previous study pattern has shown that there has been a dramatic change in the performance of non-performing assets in public and private sector banks and therefore a regular check on the NPA performance of banking industry is immensely needed.

In the banking industry, non-performing assets have emerged as a significant concern for banks worldwide (Lateef and Mohammed, 2021;Sahooet al., 2023).Indian banking sector is facing a major problem of NPA (Mishra and Pawaskar, 2017). These non-performing assets refer to loans or advances that are in default or are expected to be in default, meaning the borrower has not made regular payments or has defaulted altogether. As a result, banks face the challenge of reducing their non-performing assets and improving their net profitability (Tandonet al., 2017). According to a study conducted on a sample of banks in India covering the time period from 2005 to 2019, it was found that reducing non-performing assets and operating costs is crucial for improving bank profitability. The study highlighted that the increasing incidence of non-performing advances can have adverse effects on the performance and profitability of banks. The study also emphasized the negative impact of non-performing assets on the rate of profit of Indian banks.Nachimuthu and Vina (2019) worked to find the implication of increasing net performing assets.Results concluded that the profitability of the banks is hampered due to an immense increase in non-performing assets. The relationship between non-performing assets and the net profitability of banks has been a topic of significant research and analysis in recent years. Several studies have examined the determinants of bank profitability, with a specific focus on the impact of non-performing assets (Das, 2023). However, timely problem recognition and proper self-monitory the problems regarding NPA could be controlled up to a great extant. With the help of self-help group recovery of loans could also be managed (Rajeev and Mahesh, 2017).

Sahni and Seth (2017) analyzed various causes for rise in NPA of banks. Based on their research they have suggested that a timely assessment of credit worthiness of borrowers would surely contributein the recovery of loans. Sharma (2018) not only elucidated the undeniable importance of banking sector in the economic development of a county, butalso emphasized the importance of curbing NPA problems to reduce their burden. The author has also listed certain steps including practicable regulatory standards and opportunities, and suggested implementations of these standards to build a strong financial sector in India. These findings were also supported by Benerjeeet al. (2018) who stressed on the importance of better and strong strategy formulation and their timely execution. Study reported that poor credit management poorly analyzed and sanctioned loans without properly introspecting the borrowers capacity, and willing loan defaults by customers were the major reasons for a piled up NPAs. The author suggested that strict provisions by the government can help in bringing down the piled up NPA.

Kiran and Jones (2016) performed a study on SBI and 5 five nationalized public sector banks of India to evaluate how non-performing assets affects the profitability of banks and came to the conclusion that except for SBI all the banks faces a negative effect of increased non-performing assets.  In fact the study claimed that SBI remained unaffected by the gross non-performing assets. Dudhe(2017) also suggested somewhat similar kind of results and stated that all the other public sector banks other than PNB and SBI showed a negative correlation with their net performing assets. As these two banks are paying a close attention to their NPA and taking corrective measures to revive their bad loans. Somewhat similar findings were reported by many researchers(Kaur and Gupta, 2015).

There were studies which solely focused on the performance of private sector banks and suggested that being more profit oriented organizations private sector banks manage their non-performing assets on strict terms (Jain and Sheikh, 2012). On the other hand some of the studies also claimed that public sector banks have a higher rate of non-performing assets when compared with private sector banks and indeed there is a requirement of paying special attention to the management of NPAs (Wadhwaet al., 2020; Balasubramaniam, 2012;Tandonet al. 2017). There were other researchers who tried to compare the performance of profitability of public and private sector banks to find out the effect and concluded that indeed an increase in non-performing assets leads to a damage to the banks credibility (Gnawali, 2018;Tyagiet al., 2020). However many studies shared a different kind of opining when it came to public and private sector banks. There were studies which claimed that in spite of holding the biggest share in the banking sector, public sector banks performed rather poorly because of their mismanagement of non-performing assets thus portraying their bad health in the profitability segment (Chakraborty, 2017). One such study analyzed a sample of 39 public sector and private banks in India and found that non-performing assets have a negative impact on the profitability (Das, 2023). The growing rate of non-performing assets is indeed a subject of concern and a check on the NPA and operating costs is must if banks want to boost their performance in profitability as well as loan asset (Das and Uppal, 2021).

The previous research pointed towards the constant changes in the profit patterns of banking industry therefore an immediate need to keep a constant check on the performance of banks. Therefore, the present study was aimed to analyze the changing pattern of Non-Performing Assets of top most Public and Private sector banks from 2014 to 2023. In addition to that, the present study also analyzed which Public and Private sector banks showed the major increment in non-performing assets.Additionally, a comparative evaluation of non-performing assets and profitability of these two sectors was also done to measure the overall performance of two sectors

A sample of five Public Sector banks (namely State Bank of India, Bank of Baroda, Punjab National Bank, Union Bank and IOB) and five Private Sector banks (i.e. HDFC, ICICI, Kotak Mahindra Bank, AXIS Bank and Indus bank) was considered. The study is based on secondary data analysis and the data for the same was drawn from the official websites and publications of RBI, various journals and articles. Data period considered for the present study was from 2014 to 2023.Descriptive statisticswere employed to get the average performance of public sector banks and further to compare the results of profitmargin ofthe banks of both sectors.

1. Assessment of Non-Performing Assets of Public Sector Banks

The performance of net NPA position of banks in public sector showed that in the past years the NPA range of public sector banks has increased dramatically. An overall performance chart based on the average growth rate performance of each bank showed that the average rise innon-performing assets of SBI was huge, on the other hands big landers like PNB, UNION Bank And Bank of Baroda were not far behind in their high NPA performance. Further, investigation carried out based on the review conducted by RBI showed that SBI recorded a sharp rise in its NPA during 2016-2020, whereas for PNB it extended from 2016 to 2022. Union bank experienced a significant rise in the Net non-performing assets during 2016-2022, and according to the latest record they have somehow managed to control their poor non-performing asset situation to a significant level. Bank of Baroda revealed a high growth rate of NPAs during 2016-2021, however the growth was not constant and the data showed that there were year when their net non-performing assets were low. Further, IOB managed to control their growing NPAs and confined their poor non-performing asset growth from 2016-2019.(Table I)

Considering the performance of public sector banks as a whole we notice that SBI showed the highest average NPA (i.e. 48763.39 crore) which was much higher than PNB bank, whichexperienced a huge NPA growth of29544.85 cr. Again, data showed that the average NPA growth for Union Bank and BOB were 17159.02 and 15580.85crore respectively.  On the other hand IOB showed an average growth of 10747.23crore of NPA overall since 2014-2023. (Table I)

2. Assessment of Non-Performing Assets of Private Sector Banks

Next, if we look at the growth rate of NPAs of Private Sector and look in the performance of every bank individually we noticed that ICICI has shown a major increase in their NPA during 2017-2021. Again, AXIS bank has shown a spurt during 2018-2022. While for HDFC and KOTAK it was during 2019-2023 respectively. However, the growth on NPA for INDUS Bank was commendable as being in the big brands of the industry of Private Sector Banks it showed a relatively managed performance in NPA. (Table II)

If we consider the performance of private sector banks as a whole we notice that ICICI has the highest average NPA (i.e. 12117.5 crore) which was much higher than AXIS bank which managed to limit their growth to 6678.23 cr. Further, data showed that the average NPA growth for HDFC andKotak Bank were 2756.95 and 1456.51 crorerespectively.  On the other hand INDUS Bank showed the minimum average growth (i.e. 1075.708crore) which was the lowest growth of NPA overall. (Table II)

Table I:

Descriptive analysis of Non-Performing Assets of Public Sector Banks (In Crore)

                           Source: Author’s calculation

Table II:

Descriptive analysis of Non-Performing Assets of Private Sector Banks (In Crore)

                           Source: Author’s calculation

3. Comparing performance of Non-performing assets of Public and Private Sector Banks

If we compare the growing pattern of NPA year after year we will find that there is a spurt in the growth of NPAs of Public Sector Banks, especially during 2018-2021. The NPA performance of Private Sector banks was much less than their counterparts in the industry. Although the duration in the increase in NPA was almost the same for both the sectors in the industry, yet it was shocking to note that the relative performance was much better by Private Sector banks than Public Sector Banks.

4. Assessment of Net Profit of Public Sector Banks

Table III presents the performance of net profit of all public sector banks from the period of 2014-2023. The average net profit performance of SBI had been sustainable, as being the largest performers of NPA it still managed to secure the higher performer of net profits among the top most banking companies in public sector, indicating that the high rate of NPAs did not had a damaging influence on the profits of the bank. The net profit performance by BOB and UNION banks was manageable as they sustained a respectable figure of 2468.583 and 1086.344 crore respectively.However, the image portrayed by the net performance of PNB and IOB were quiet disturbing as the figures suggested a heavy loss to the profitability of these banks.

5. Assessment of Net Profit of Private Sector Banks

Similar Table IV gives a glimpse of net profits of top most brands of private sectors banks. Figures in the table indicate that even after a high NPA as compared to its competitors HDFC managed to secure a better position in terms of net profit. Whereas, ICICI bankstill needs to work on its policies to improve its net profit (i.e.13001.34 crore). Other banks (KOTAK, AXIS and Indus Bank) managed to secure a substantial amount of net profits and showed figures which were nearby each other.

Table III:

Descriptive analysis of Net Profits of Public sector Banks (In Crore)

                           Source: Author’s calculation

Table IV:

Descriptive analysis of Net Profits Assets of Private sector Banks (In Crore)

                           Source: Author’s calculation

6. Comparing performance of Net Profits of Public and Private Sector Banks

The Profit margin of Public sector banks had been highly sensitive as compare to the private sector banks from 2014-2023. Figures indicated that the majority of Private sector banks not only managed to secure their position in the confinements of a sustainable profit margin but also managed to perform far better than their public counterparts, indicating the sole effectiveness of their robust strategy making and their effective and timely implementation. On the other hand Public sector banks showed themselves in a far grave situation by not only being able to recover the expected profits but also failing to secure the required sustainability in profit making, indicating that there is still much to be done to improve their overall performance.

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