NPAs & AQR

Factors affecting NPA

Measures to reduce NPA
Quantitative Analysis
Graphs & Inferences
Recommendations
 NPA & AQR?
A Non performing asset shall be an advance where:
Interest and/or instalment of principal remain overdue
for a period of more than 90 days in respect of a loan

Reserve Bank of India (RBI) inspectors check bank

books every year as part of its annual financial
inspection (AFI) process to check if classification was in
line with prudential norms

When the same check was made in mid 2015s it was

found that Banks were postponing bad-loan
classification and deferring the inevitable and
classification was improper.

The AQR created havoc on banks profit & loss accounts

as many large lenders slipped into losses
 Factors behind NPA
Wilful Defaulting
Advancing loans to ineligible persons
Advancing loans to longer gestation period
projects
Lack of internal Control processes like
inspection & site visits
Inefficient In house credit appraisal system
Advances without securities or references
Industrial Sickness
Lack of demand
 Suggestions to handle NPAs
Credit Derivatives
Securitization of NPAs
SDRs
S4A
Speeding up DRTs
SARFAESI
Lok Adalats
Negotiating for compromise settlements
Circulation of information on Wilful defaulters
Restructuring
Improving CRAR
 Quantitative Analysis
Comparative Analysis of NPA
The following measures/ratios were
employed for NPA Analysis of ICICI &
HDFC Banks
Gross NPA ratio
Net NPA ratio
Loan to Deposit ratio
Capital Adequacy Ratio
Problem Assets Ratio
Provision Coverage Ratio
 Gross vs Net NPAs
9.00%

8.00%

7.00%

6.00%
ICICI Bank Gross NPA %
5.00%
ICICI Bank Net NPA %
4.00% HDFC Bank Gross NPA %
3.00% HDFC Bank Net NPA %

2.00%

1.00%

0.00%
2011-12 2012-13 2013-14 2014-15 2015-16

Compared to HDFC Bank, ICICI Bank shows a worse Gross NPA

Ratio as well as Net NPA Ratio. This means that ICICI Bank has
a larger base of Non-performing Assets in general, which is a
bad sign. Further the Year-on-year increase of NPAs in ICICI is
also very steep, whereas the Gross and Net NPA curves for
HDFC are fairly flat.
 120.00%
The Loan-to-Deposit Ratio of
a bank denotes exactly what it 100.00%

reads the percentage of loans 80.00%

lent out on the deposits
60.00% ICICI Bank LTD
received. An optimal ratio of HDFC Bank LTD
around 75-80% is advisable. 40.00%

HDFC has maintained it around 20.00%

those levels precisely. ICICI
Bank, on the other hand, has 0.00%
2011-12 2012-13 2013-14 2014-15 2015-16
lent out more than it has
received, meaning it is risking
the shareholders money in the
company, which isnt a wise
thing to do.
20.00%
The Capital Adequacy Ratio
18.00%
16.00% shows how much capital a bank
14.00% has to support its risky loans. At
12.00%
first sight, it may seem like ICICI
10.00% ICICI Bank CAR
8.00% HDFC Bank CAR Bank has done better, but it is to
6.00% be noted that ICICI Bank has
4.00% almost double the capital base
2.00% of HDFC. However, its CAR is
0.00%
2011-12 2012-13 2013-14 2014-15 2015-16
just ~1% better than that of
HDFCs, which is not such a
 Explanation Needed 4.00%

3.50%

3.00%

2.50%

2.00% ICICI Bank PAR

HDFC Bank PAR
1.50%

1.00%

0.50%

0.00%
2011-12 2012-13 2013-14 2014-15 2015-16

80.00%
Explanation Needed
70.00%

60.00%

50.00%

40.00% ICICI Bank PCR

HDFC Bank PCR
30.00%

20.00%

10.00%

0.00%
2011-12 2012-13 2013-14 2014-15 2015-16
Conclusion