MINIMISING FRESH SLIPPAGE AND MAXIMISING RECOVERY A COMPARATIVE ANALYSIS OF NPA OF PSBs & SCBs

7/28/2019 MINIMISING FRESH SLIPPAGE AND MAXIMISING RECOVERY A COMPARATIVE ANALYSIS OF NPA OF PSBs & SCBs.

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SUMMER INTERNSHIP 2013

MINISTRY OF FINANCE

DEPARTMENT OF FINANCIAL SERVICE

RECOVERY SECTION

TOPIC

MINIMISING FRESH SLIPPAGE AND MAXIMISING RECOVERY

ANALYSIS OF NPA: A COMPARATIVE STUDY BETWEEN PSB & SCB

UNDER THE GUIDANCES OF

MR. ANURAG JAIN MR. MIHIR KUMAR

JOINT SECRETARY (IF) DIRECTOR (RECOVERY)

SUBMITTED BY-

DIVISHA GOYAL

M.A ECONOMICS

DELHI SCHOOL OF ECONOMICS

UNIVERSITY OF DELHI


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ACKNOWLEDGEMNT

I would like to express my special thanks of gratitude to the DIRECTOR (Recovery) Mr. MIHIR KUMAR, JOINTSECRETERIAT(IF) Mr. ANURAG JAIN who gave me the golden opportunity to project on the topic MINIMISINGFRESH SLIPPAGE AND MAXIMISING RECOVERY and guided me greatly in successful completion of the project.During the course of this project I developed huge research insight and knowledge.Secondly, I would like to thank Mr. ADITYA S. SINGH and Mr. N.K MALIK who helped me collect the entire databasefrom RBI and MOF.Thirdly, I would like to thank Mr. MAHENDER SINGH, Mr. V.K SINGH (officers of other section), who helped megreatly during the course of the project in developing a structure to my project and all other people who wereinvolved in enhancing my knowledge base.


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VISION

"Appropriate and timely measures have to be taken by the bankers in such away NPA rates can be brought

down, and should visions to make NPA one percent by 2014 to make a prospective economic situation".

ABSTRACT At the micro level, NPAs affects liquidity, profitability and performance of banks. While at the macro level, NPAsaffect stability of banking and leads to financial shocks in economy.The research evaluates policy measures that can be taken in order to reduce growth rate in NPA and overall NPAratio based on the study of past and present trend (1997-2013 period) and existing measures effectiveness inreducing NPA .Study on empirical data has evaluated that whether there is significant impact of macroeconomic variables likeGDP, foreign currency assets, inflation, and rate of interest on the NPA reduction. Analysis has also been made tocheck if there is a significant impact of growth rate in gross advances on gross NPA, gross NPA ratio etc. Thesignificance of impact of various sectors gross advances on gross NPA, impact of NPA reduction on PSBs, SCBs net

profits is analyzed. Also, the significance of impact of various recovery efforts (compromise settlement/write off ,LOK ADALATS, DRT, SARFAESI Act, up-gradation) on NPA reduction, actual recovery and profitability of banks has

been analyzed for both PSBs and SCBs.


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S. No. TABLE OF CONTENTS PAGENO

l) INTRODUCTION 7ll) RESEARCH OBJECTIVES AND METHODOLOGY 10lll) ANALYSIS 11-51

Analysis 1 Impact of macroeconomic indicators on NPA reduction 11-14A) Impact of GDP at market price (constant prices) on NPA reduction (2001-2012) 11B) Impact of foreign currency assets on NPA reduction (2001-2012) 12C) Impact of WPI on NPA reduction (2001-2009) 13

Impact of rate of interest on NPA reduction (2001-2012) 14Analysis 2 Trend of asset classification, gross advances, gross NPA, gross NPA ratio 15-17A) Trend in NPA asset classification over the years (PSB, SCB)(1997-2013) 15B) Trend in Gross advances of priority and non priority sector (PSB, SCB)(1997-2013) 16C) Trend in Gross NPA of priority and non priority sector (PSB, SCB)(1997-2013) 17D) Trend in NPA ratio of priority and non priority sector rate (PSB, SCB)(1997-2013) 17Analysis 3 Trend, correlation, regression analysis of gross NPA, gross advances, gross NPA ratio 18-20

A) Trend in growth rate of NPA ratio, Gross NPA and Gross advances (PSB, SCB)(1998-2013) 18B) Analysis of impact of growth rate in gross advances on growth rate in gross NPA ratio(PSB,SCB)(1998-2013)

18

C) Analysis of impact of growth rate in gross NPA on growth rate in gross NPA ratio (PSB,SCB)(1998-2013)

19

D) Analysis of impact of growth rate in gross advance on growth rate in gross NPA (PSB, SCB) (1998-2013)

20

Analysis 4: Trends, descriptive analysis of all the sectors gross NPA 21-25A) Trend analysis of ratio of gross NPA of sectors component of PS to gross NPA of PS (PSB,SCB)

(1997-2013)21

B) Descriptive analysis of ratio of gross NPA of sectors component of PS to gross NPA ( PSB) (1997-2013)

21

C) Descriptive analysis of ratio of gross NPA of sectors component of PS to gross NPA of PS(SCB)(1997-2013) 22

D) Trend analysis of ratio of gross NPA of PS, NPS to total sector gross NPA (PSB, SCB)(1997-2013) 23E) Analysis of factors leading to growth rate in gross NPA ratio (PSB) (1998-2013) 24F) Analysis of factors leading to growth rate in gross NPA ratio (SCB) (1998-2013) 25Analysis 5 Trend, correlation, regression analysis of growth rate of NPA ratio, growth rate in banks net

profits, gross NPA ratio, net bank profits, NPA reduction .26-28

A) Trend, correlation, regression analysis of growth rate in NPA ratio and growth rate in bankprofitability (PSB, SCB)( Year 1997-2013)

26

B) Trend, correlation, regression analysis of NPA ratio and bank net profits (PSB, SCB)( Year 1997-2013)

27

C) Trend, correlation, regression analysis of NPA reduction and banks net profits (PSB, SCB)( Year

1997-2013)

28

Analysis 6 Trend, correlation , regression analysis among gross advances and gross NPA of all the sectors 29-34A) Trend, correlation, regression analysis of gross advances on gross NPA (agriculture)(1997-2013) 29B) Trend, correlation, regression analysis of gross advances on gross NPA (SME)(1997-2013) 30C) Trend, correlation, regression analysis of gross advances on gross NPA (other

prioritysector)(OPS)(1997-2013)31

D) Trend, correlation, regression analysis of gross advances on gross NPA (total priority sector,TPS)(1997-2013)

32

E) Trend, correlation, regression analysis of gross advances on gross NPA (Non priority sector)(1997- 33


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2013)Analysis 7 Trend, correlation, descriptive, regression analysis of reduction in NPA and its components

(comparative analysis of PSBs, SCBs)35-41

A) Reduction in NPA 35A.1) Reduction in NPA (actual recovery +recovery due to up-gradation +recovery due to compromise

settlement)(PSB, SCB)(2001-2012)35

A.2) Correlation analysis of NPA reduction with its components (2001-2012) 35B) Actual recovery 36B.1) Trend analysis of actual recovery (PSB, SCB) (2001-2012) 36B.2) Correlation analysis of actual recovery between PSBs, SCBs 36B.3) Trend analysis of actual recovery (PSB to SCB ratio)(2002-2013) 36C) Reduction in NPA due to up- gradation 37-38C.1) Trend analysis of Reduction in NPA due to up- gradation (2001-2012) 37C.2) Correlation analysis of reduction in NPA due to up-gradation between PSBs, SCBs 37C.3) Trend analysis of up-gradation ratio for the period (2001-2012) 38D) Reductions in NPA due to compromise write-off (2001-2012) 38-39D.1) Trend analysis of recovery due to compromise/write off (PSB,SCB) for the period 2001-2012) 38D.2) Correlation analysis of reduction in NPA due to compromise/settlement write off between PSBs,

SCBs39

D.3) Trend analysis of compromise write off ratio for the period between 2001-2012 39E) Impact of actual recovery, recovery due to up-gradation, recovery due to compromise

settlement on NPA reduction for both PSBs, SCBs (2001-2012)40

Analysis 8 Trend, correlation, regression analysis of recovery due to up-gradation, compromise settlement& actual recovery on banks net profits.

42-44

A) Trend, correlation, regression analysis of recovery due to up-gradation on bank net profits (2001-2012)

42

B) Trend, correlation, regression analysis of recovery due to up-gradation on bank net profits (2001-2012)

43

C) Trend, correlation, regression analysis of recovery due to compromise settlement on bank netprofits (2001-2012)

44

Analysis 9 Trend, correlation of restructuring of assets, regression analysis of Growth rate of restructuring(RSADV ratio) and growth rate of bank profits

45-47

A) Trend analysis of restructuring assets, restructuring ratio(PSBs, SCBs) (2002-2013) 45B) Correlation analysis of restructuring of assets (2002-2013) 46C) Trend of Growth rate of restructuring (RSADV ratio) and growth rate of bank profits (2002-2013) 47Analysis 10 Trend, correlation, regression analysis of recovery measures undertaken (LOK ADALAT, DRT,

SARFAESI Act) and (NPA reduction, actual (cash) recovery)48-52

A) Trend analysis of recovery measures undertaken, NPA reduction, actual recovery (2004-2012) 48-49A1) Trend analysis of recovery due to SARFAESI Act, LOK ADALATS in PSBs. 48A2) Trend analysis of recovery due to DRT, LOK ADALAT in SCBs. 49

B)Correlation analysis of recovery measures undertaken with NPA reduction and actual recovery(2004-2012) 50

C) Regression analysis of recovery measures undertaken with NPA reduction and actual recovery 50-52C.1) Impact of recovery due to SARFAESI Act on NPA reduction and actual recovery.(2004-2012) (PSB) 50C.2) Impact of recovery due to LOK ADALAT on NPA reduction and actual recovery.(2006-2012)( PSB) 51C.3) Impact of recovery due to DRT on NPA reduction and actual recovery (2004-2012) ( SCB) 51C.4) Impact of recovery due to LOK ADALAT on NPA reduction and actual recovery.(2004-2012) (SCB) 52lV) Conclusions from above generated results 53-54


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V) OTHER MEASURES TO REDUCE NPA 55-56A) Altmans Z score 55-56A.1) Can banks use Altmans Z score to detect financial position of companies in addition to credit

rating to judge their financial position in deciding whom to lend whom not to lend?55

A.2) Brief on Altmans Z score 55A.3)

Application of Z score in Indian context56

B) Credit rating 56VI) RECOMMENDATIONS 57VII) APPENDIX (TABLES) 58-66


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l) INTRODUCTIONManagement of NPA is need of the hour. To be effective, NPA management has to be an exercise pervading theentire bank from the Board down the last level. Time is of prime essence in NPA management. The course open tothe banker is to ensure that an asset does not become NPA. If it does, the steps should be taken for early recoveryfailing which the profitability of the bank will be eroded. That can trigger other problems to undermine the banksfinancial condition.

Therefore, NPA is an important factor, which affects the performance of the banks. So it is very important to checkit, from time to time and try to minimize it in order to get increasing returns.Reasons of NPAAt a macro level, the reasons for increase in NPAs of banks, inter-alia, are switch over to System BasedIdentification of NPAs, current macro-economic situation in the country, increased interest rates in the recent past,lower economic growth ,crop failure etc.While at a micro level, the unsuccessful operation of production, longer time period taken in realizing income flowout of production or delays in commencement of their project calamities aggressive lending by banks in the past,especially during good times., fraud activities such as wrong information by the borrower about their businesscredit worthiness or wrong proof of documents of assets they mortgages, against the loan amount taken etc. canlead to slippage of assets into NPA, delay in loan disbursement can throw a project off track, and have a cascading

effect on its viability and capacity to repay, the inability to banks to judge credit worthiness of industrialist orunder predicting wrong gestation period can also affect bor rowers ability to repay interest/ principal amount intime.Problems due to NPA Nonperforming loans epitomize bad investment. They misallocate credit from good projects, which do not receivefunding to failed projects. Bad investment ends up in misallocation of capital and by extension, labor and naturalresources. Bank redistributes losses to other borrowers by charging higher interest rates, lower deposit rates andhigher lending rates repress saving and financial market, which hamper economic growth. Since provisioning hasto be made if assets turn into NPA, this further reduces the profitability of the banks and thus their credit creationcapacity to a large extend.

Strategies for overcoming NPAsVarious steps have been taken by the government and RBI to recover and reduce NPAs. The strategies necessary tocontrol NPAs are discussed below. There are two broad categories of management to prevent NPA. A) Preventivemanagement and B). Curative managementA. Preventive Management:Preventive measures are to prevent the asset from becoming a non performing asset. Banks has to concentrate onthe following to minimize the level of NPAs.1. Early Warning SignalsThe origin of the flourishing NPAs lies in the quality of managing credit assessment, risk management by the banksconcerned.Banks should have adequate preventive measures, fixing pre sanctioning appraisal responsibility and having aneffective post-disbursement supervision. Banks should continuously monitor loans to identify accounts that havepotential to become non-performing.

It is important in any early warning system, to be sensitive to signals of credit deterioration. A host of earlywarning signals are used by different banks for identification of potential NPAs.The indicators which may trigger early warning system depend not only on default in payment of installment andinterest but also other factors such as deterioration in operating and financial performance of the borrower,weakening industry characteristics, regulatory changes, and general economic conditions. Early warning signals canbe classified into five broad categories viz.(a) Financial (b) Operational (c) Banking (d) Management and (e) External factors.Financial related warning signals generally emanate fro m the borrowers balance sheet, income expenditurestatement, statement of cash flows, statement of receivables etc


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2. Financial warning signalsSuch signals are related to financial position of the borrowers. For example Persistent irregularity in the account

Default in repayment obligation, devolvement of LC/invocation of guarantees, deterioration in liquidity/workingcapital position, substantial increase in long term debts in relation to equity, declining sales, operating losses/netlosses, rising sales and falling profits, disproportionate increase in overheads relative to sales, rising level of baddebt losses, operational warning signals, low activity level in plan, disorderly diversification/frequent changes in

plan, non -payment of wages/power bills, loss of critical customer/s, frequent labor problems, evidence of agedinventory/large level of inventory3. Management related warning signalsSuch signals are related to management issues of the borrowers firm. For example Lack of co-operation fromkey personnel, change in management, ownership, or key personnel, desire to take undue risks, family disputes,poor financial controls, fudging of financial statements, diversion of funds.4. Banking related signalsSuch signals are associated with banking position of the borrowers. For example Declining bank balances/declining operations in the account, opening of account with other bank, return of outward bills/ dishonoredcheques, sales transactions not routed through the account, frequent requests for loan, frequent delays insubmitting stock statements, financial data, etc.Signals relating to external factors include economic recession, emergence of new competition, emergence of new

technology, changes in government / regulatory policies, natural calamities.5. Watch-list/Special Mention CategoryThe grading of the banks risk assets is an important internal control tool. It serves the need of the Management toidentify and monitor potential risks of a loan asset. The purpose of identification of potential NPAs is to ensurethat appropriate preventive / corrective steps could be initiated by the bank to protect against the loan assetbecoming non-performing. Most of the banks have a system to put certain borrowable accounts under watch listor special mention category if performing advances operating under adverse business or economic conditions areexhibiting certain distress signals. These accounts generally exhibit weaknesses which are correctable but warrantbanks closer attention. The categorizati on of such accounts in watch list or special mention category providesearly warning signals enabling Relationship Manager or Credit Officer to anticipate credit deterioration and takenecessary preventive steps to avoid their slippage into non performing advances6. Willful DefaultersRBI has issued revised guidelines in respect of detection of willful default and diversion and siphoning of funds. As

per these guidelines a willful default occurs when a borrower defaults in meeting its obligations to the lender whenit has capacity to honor the obligations or when funds have been utilized for purposes other than those for whichfinance was granted. The list of willful defaulters is required to be submitted to SEBI and RBI to prevent theiraccess to capital markets. Sharing of information of this nature helps banks in their due diligence exercise andhelps in avoiding financing unscrupulous elements. RBI has advised lenders to initiate legal measures includingcriminal actions, wherever required, and undertake a proactive approach in change in management, whereappropriate.B. Curative ManagementThe curative measures are designed to maximize recoveries so that banks funds locked up in NPAs are released forrecycling. The Central government and RBI have taken steps for controlling incidence of fresh NPAs and creatinglegal and regulatory environment to facilitate the recovery of existing NPAs of banks. Some of them have beendiscussed below:1. One Time Settlement Schemes: This scheme covers all sectors sub standard assets, doubtful or loss assets. Allcases on which the banks have initiated action under the SARFAESI Act and also cases pending before Courts/DRTs/ BIFR, subject to consent decree being obtained from the Courts/DRTs/BIFR are covered.However cases of willful default, fraud and malfeasance are not covered. As per the OTS scheme, for NPAs up toRs. 10 crores, the minimum amount that should be recovered should be 100% of the outstanding balance in theaccount.2. LokAdalats: Lok Adalat institutions help banks to settle disputes involving account in doubtful and losscategory, with outstanding balance of Rs. 5 lakhs for compromise settlement under Lok Adalat. Debt recoverytribunals have been empowered to organize Lok Adalat to decide on cases of NPAs of Rs. 10 lakh and above.


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3. Debt Recovery Tribunals (DRTs): The Debt Recovery Tribunals have been established by the Government of Indiaunder an Act of Parliament (Act 51 of1993) for expeditious adjudication and recovery of debts due to banks andfinancial institutions. The Debt Recovery Tribunal is also the appellate authority for appeals file against theproceedings initiated by secured creditors under the SARFAESI Act. The recovery of debts due to banks andfinancial institution passed in March 2000 has helped in strengthening the function of DRTs. Provision forplacement of more than one recovery officer, power to attach defendants property/assets before judgement,

penal provision for disobedience of tribunals order or for breach of any terms of order and appointment of receiver with power of realization, management, protection and preservation of property are expected to providenecessary teeth to the DRTs and speed up the recovery of NPAs in the times to come.4. Securitization and SARFAESI ActSecuritization is considered an effective tool for improvement of capital adequacy. It is also seen as a tool fortransferring the reinvestment risk, apart from credit risk helping the banks to maintain proper match betweenassets and liabilities. Securitization can also help in reducing the risk arising out of credit exposure norms and theimbalances of credit exposure, which can help in the maintenance of healthy assets. The SARFAESI Act intends topromote Securitization, pool together NPAs of banks to realize them and make enforcement of Security InterestTransfer. The SARFAESI Act-2002 is seen as a booster, initially, for banks in tackling the menace of NPAs withouthaving to approach the courts.

RECENT INITIATIVES (taken by Government of India and RBI)

1) To put in place an effective mechanism for information sharing for sanction of fresh loans/ad-hocloans/renewal of loans to new or existing borrowers.

2) To constitute a Board level Committee for monitoring of recovery.3) To review NPA accounts of Rs. 1 crore and above by Board of Directors and top 300 NPA accounts by

Management Committee of the Board.4) Appointment of a Nodal Officer for recovery at the Head Office/Zonal Office/for each DRT.5) Thrust on recoveries of loss Assets.6) Write-off should not be more than recovery.7) Designating of ARCs as Authorized Officer.

8) Guidelines issued for effective NPA Management as part of early warning system.9) Thrust on organizing LOK ADALATS/Recovery Camps.10) Given the larger objectives of financial stability, and keeping in view international best practices to ensure

that banks have sufficient provisioning buffer, RBI has announced, in its second review of Monetary Policy, toraise the provision for restructured standard accounts from the existing 2 per cent to 2.75 per cent.

11) To address the issue of rise in NPAs and restructured advances of banks, and with a view to improvingeffective information sharing among banks on credit, derivatives and unhedged foreign currency exposures,banks are advised to put in place, by end-December 2012, an effective mechanism for information sharing.Any sanction of fresh loans/ad-hoc loans/renewal of loans to new or existing borrowers with effect fromJanuary 1, 2013 should be made only after obtaining/sharing necessary information. Banks have beenadvised that non adherence to these instructions would be viewed seriously by RBI and banks would be liableto action including imposition of penalty wherever considered appropriate.


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ll) RESEARCH OBJECTIVES AND METHODOLOGYObjectives

1) To analysis the significance of impact of various macroeconomics indicators (GDP, foreign currency assets,inflation, rate of interest) on NPA reduction.

2) To analysis the trend performance of various NPA variables (NPA asset classification, priority, non prioritysector gross NPA ratio, gross NPA) & advances.

3) To analysis the significance of impact of growth rate of gross advances on growth rate of gross NPA ratio& on growth rate in gross NPA. Also the impact of growth rate in gross NPA on growth rate in gross NPAratio.

4) To make analysis of ratio of gross NPA of sectors component of PS to gross NPA, analysis of ratio of grossNPA of PS, NPS to total sector gross NPA & the factors leading to growth rate in gross NPA ratio.

5) To make correlation, regression analysis of growth rate in NPA ratio and growth rate in bank profitability,analysis of NPA ratio and bank net profits & of NPA reduction and banks net profits.

6) To make correlation and regression analysis of gross advances and gross NPA of all the sectors.7) To make correlation, descriptive, regression analysis of reduction in NPA and its components.8) To make regression analysis of impact of actual recovery, recovery due to up-gradation, recovery due to

compromise settlement on NPA reduction & banks net profits.9) To make analysis of restructuring assets, restructuring ratio.10) To make correlation, regression analysis of recovery measures undertaken (LOK ADALAT, DRT, SARFAESI

Act) and (NPA reduction, actual (cash) recovery).

Data and MethodologyThe major variables used for the present study are NPA ratio, Gross advances, gross NPA, net profits of banks,macro-economic indicators, recovery efforts in NPA reduction of public sector banks and scheduled commercialbanks. For the purpose, data from 1997 to 2013 on annual basis have been collected from ministry of finance andRBI, while for some of the variables, analysis has been made from period 2001 onwards. The longer durationperiod is chosen to have sufficient variability in the independent variables to have an efficient estimated resultsderived from the regression analysis. All the years represents financial year as on 30 th march. However for

simplification purpose, the date has not been specified along with the year. This study is based on secondary dataanalysis of the banks and all the figures of the variables taken for the analysis purpose are in crore units, except forforeign currency assets and GDP which are in billions. The entire following results have been generated usingSTATA software.


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lll) ANALYSIS

Analysis 1: Impact of macroeconomic indicators on NPA reduction

A) Impact of GDP at market price (constant prices) on NPA reduction (2001-2012)

PSB SCB

NPA reduction_PSB( fig in crore) GDP(market price)( figures in rs bn) NPA reduction_SCB(fig in crore)Correlation analysis

correlation NPA reductionGDP 0.9218

There is a very strong and positive correlation of GDP atmarket price and NPA reduction in PSBs.

Regression study

Null hypothesis(Ho):no impact of GDP on NPA reduction.

NPA reduction=-11886.36 cr +.0097 GDPThe coefficient value has been corrected for the change in scaling.

GDP figures are in rupee billions and NPA reduction figures in croresIf GDP increases by 1 unit (billion), it leads to .97 crorerise in NPA reduction figure.

R-squared=0.8497Adj R-squared =0.8347

R squared depicts the percentage explanation of dependent variable dueto independent variable.

ANNOVA REGRESSION ANALYSISNPA

reductioncoefficient T value P>|t|

GDP 0.0097 7.54 0.00

T values and correlation coefficient values are not affected by different scaling.

At the 5% level of significance the critical t value=2.20(11degrees of freedom, n=12) is much less than theobserved t value=7.54 implying that there is a significantimpact of GDP on NPA reduction and the null is rejected.

Correlation analysiscorrelation NPA reduction

GDP 0.9701There is a very strong and positive correlation of GDP atmarket price and NPA reduction in SCBs.

Regression study

Null hypothesis(Ho):no impact of GDP on NPA reduction.

NPA reduction=-18808.65 cr + 0.0137 GDPThe coefficient value has been corrected for the change in scaling.

GDP figures are in rupee billions and NPA reduction figures in croresIf GDP increases by 1 unit (billion), it leads to 1.37 cr rise inNPA reduction figure.


R squared depicts the percentage explanation of dependent variable dueto independent variable.



GDP 0.0137 9.19 0.000

T values and correlation coefficient values are not affected by different scaling.

At the 5% level of significance the critical t value=2.20(11degrees of freedom, n=12) is much less than the observedt value=9.19 implying that there is a significant impact of GDP on NPA reduction and the null is rejected.

Footnote : GDP at constant prices is taken to negate the impact of inflation on NPA reduction figures.Source: RBI, MOFReference: appendix, table no 1


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B) Impact of foreign currency assets on NPA reduction (2001-2012)

PSB SCBNPA reduction_PSB, NPA reduction_SCB figures are in crores & foreign currency assets are in billion rupees.


foreign currency assets 0.7997There is a very strong and positive correlation of foreigncurrency assets and NPA reduction in PSBs.

Regression study

Null hypothesis(Ho):no impact of foreign currency assetson NPA reduction.

NPA reduction =9374cr+0.0204 foreign currency assetsThe coefficient value has been corrected for the change in scaling.

Foreign currency assets figures are in rupee billions and NPA reduction figures in crores.

If foreign currency assets (F.C.A) rises by 1 unit (billion), itleads to 2.04 cr rise in NPA reduction figure of PSBs.




F.C.A 0.0204 4.21 0.02T values and correlation coefficient values are not affected by different scaling.

At the 5% level of significance the observed t value=4.21is much higher than the critical t value=2.20(11 degreesof freedom, n=12) implying that there is a significantimpact of foreign currency assets on NPA reduction andthe null is rejected.


foreign currency assets 0.8454There is a very strong and positive correlation of foreigncurrency assets and NPA reduction in SCBs.

Regression study

Null hypothesis(Ho): no impact of foreign currency assetson NPA reduction.NPAreduction=10470 cr+0.0297 foreign currency assets

The coefficient value has been corrected for the change in scaling.Foreign currency assets figures are in rupee billions and NPA reduction

figures in crores.

If foreign currency assets (F.C.A) rises by 1 unit (billion), itleads to 2.97 cr rise in NPA reduction figure of SCBs.




F.C.A 0.0297 5.00 0.01T values and correlation coefficient values are not affected by different scaling.

At the 5% level of significance the observed t value=5 ismuch higher than the critical t value=2.20(11 degrees of freedom, n=12) implying that there is a significant impactof foreign currency assets on NPA reduction and the null isrejected.

Source: RBI, MOFReference: appendix, table no 1


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C) Impact of WPI on NPA reduction (2001-2009)

PSB SCB

NPA reduction_PSB WPI NPA reduction_SCB

Correlation analysiscorrelation NPA reduction_PSB

WPI 0.9084There is a very strong positive correlation between WPIand NPA reduction in PSBs.

Regression study

Null hypothesis(Ho): no impact of WPI on NPA reduction

NPA reduction_PSB = -6918.53 +139.29 WPI

R-squared= 0.8251Adj R-squared = 0.8001


reductioncoefficient Std. error T

valueP>|t|

F.C.A 139.2928 24.23821 5.75 0.001T values and correlation coefficient values are not affected by different scaling.

The associated T value=5.75 is much higher than theobserved critical value of 2.306(8 degrees of freedom,n=9), at 5% level of significance implying that there is asignificant positive impact of WPI on NPA reduction.

Correlation analysiscorrelation NPA reduction_SCB

WPI 0.8690There is a very strong positive correlation between WPIand NPA reduction in SCBs.

Regression study

Null hypothesis(Ho): no impact of WPI on NPA reduction.

NPAreduction_SCB= -16672.42 + 220.35 WPI

R-squared= 0.7552Adj R-squared = 0.7202


reductioncoefficient Std. error. T

valueP>|t|

F.C.A 220.3506 47.42061 4.65 0.002T values and correlation coefficient values are not affected by different scaling.The associated T value=4.65 is much higher than theobserved critical value of 2.306(8 degrees of freedom,n=9), at 5% level of significance implying that there is asignificant positive impact of WPI on NPA reduction.



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Analysis 2: Trend of asset classification, gross advances, gross NPA, gross NPA ratio

A) Trend in NPA asset classification over the years (PSB, SCB)(1997-2013)PSB SCB

From the period 1997 to 2007, the trend in movement of substandard, standard, loss asset has been same. After this periodthe rise in both sub standard and doubtful asset is remarkableand increasing at an increasing rate. The rate of growth in lossasset seems to be stagnant throughout the period.

The trend in movement of all the three asset classification of NPA is showing a similar sign. This is because PSB public sectorbanks comprise the largest share of SCBs of around 70%throughout the period.

Summary of asset classification of NPA

Average is close to NPA ratio of period 2009-10Average is close to NPA ratio of period 2011Average is close to NPA ratio of period 2006

Variable Mean Minimum Maximum Standarddeviation

Substandard

23053.87 11084.45(yr 2005)

79434.34(yr 2013)

18839.8

doubtful 30486.39 19083.13(yr 2008)

68947.37(yr 2013)

11916.4

loss 5109.535 3671.53(yr 2008)

6535.35(yr 2002)

794.192

Summary of asset classification of NPA

Average is close to NPA ratio of period 2008-09Average is close to NPA ratio of period of 2010-11Average is close to NPA ratio of period 2004

Variable Mean Minimum Maximum Standarddeviation

Substandard

29156.66 14073.19(yr 2005)

88112.77(yr 2013)

20507.4

doubtful 37175.97 24303.66(yr 2008)

82958.1(yr 2013)

14969.11

loss 7189.414 4716.61(yr 1997)

10683.83(yr 2013)

1721.1



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B) Trend in Gross advances of priority and non priority sector (PSB, SCB)(1997-2013)PSB SCB

The rate of increase in gross advances to the nonpriority sector of PSBs has been steadily rising after2006 period. However the difference in advances toboth priority and non priority sector was not verysignificant during period 1997 to 2004. Since all banksare required to lend 40%of their advances to nonpriority sector, the trend in growth rate of advances tonon priority sector is showing an increasing trend but isincreasing at a decreasing rate.

The major component of SCBs being PSBs, the trend of gross advances in both the sector is similar depictingthat the driver in trend of advances in SCBs is PSBs.

Null hypothesis: no significant difference, level of significance 20% gives t value of 1.49(17 obs)To check significance of mean difference in gross advances of PSBs (priority sector and non priority sector )T value=-445708.8/ 455767.6 =0.977


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C) Trend in Gross NPA of priority and non priority sector (PSB, SCB)(1997-2013)PSB SCB

One of the reasons for the rise in gross NPA over the years is that the NPA definition has been revived over theyears. W.e.f 1992, the asset is not recognized as income on accrual basis. And w.e.f 31.3.04, the no of days to

classify assets under NPA has been reduced from 180 days to 90 days. This effect is clearly evident for both PSBsand SCBs.Also the impact of gross advances on gross NPA has been significant as evident from analysis done in subsequentpages, so the other reason for the rise in gross NPA for PSBs, SCBs has been a rise in gross advances.

Source: RBI, MOFReference: appendix, table no 4.

D) Trend in NPA ratio of priority and non priority sector rate (PSB, SCB)(1997-2013)

PSB SCB

In the initial period the growth rate in gross advances outnumbered growth rate in gross NPA for both priority andnon-priority sector, therefore NPA ratio has been declining. While after 2009 onwards the NPA ratio is rising (forPSBs) and 2010 onwards (for SCBs) owing to higher growth rate in gross NPA.

Source: RBI, MOFReference: appendix, table no 4.


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Analysis 3: Trend, correlation, regression analysis of gross NPA, gross advances, gross NPA ratio

A) Trend in growth rate of NPA ratio, Gross NPA and Gross advances(PSB, SCB)(1998-2013)PSB SCB

The trend in growth rate of gross NPA ratio and Gross advances (from the graph above) does not show any clearcorrelation between them. However we can draw an inference that the growth rate in NPA ratio has been negative butfalling till year 2005 following which the growth rate is showing an upward trend. The trend of falling rate in NPA fromperiod 1998 to 2006 could be attributed to the fact that major efforts were being taken during that time period torecover assets. However the rise in NPA after 2006 is because of the fact that BASEL requirement to recognize NPAreduced its period of keeping it into standard asset from 1 year to 6 months in 2001 and further got reduced to 3months and a sustained rise in gross advances.The trend in growth rate of gross NPA and gross NPA ratio is similar. Only in 2006 there is some divergence in thegrowth rate of gross NPA and growth rate of NPA ratio due to an increased growth rate in gross advance ratio.From the above graph there does not seem to be significant difference in the gross NPA, gross advances and gross NPAratio for PSBs, SCBs & therefore same inference can be drawn for both the graphs.Source: RBI, MOFReference: appendix, table no 5

B) Analysis of impact of growth rate in gross advances on growth rate in gross NPA ratio (PSB,SCB)(1998-2013)

PSB SCBCorrelation analysis

Correlation Growth rate grossadvances

Growth rate NPA ratio -0.5941

There exist a negative correlation in the growth rate of NPA ratio and growth rate in gross advances and themagnitude of correlation is given by value 0.5941.

Correlation analysisCorrelation Growth rate gross

advancesGrowth rate NPA ratio -0.6709

There exist a negative correlation in the growth rate of NPA ratio and growth rate in gross advances and themagnitude of correlation is given by value 0.6709.

Regression study

Null hypothesis(Ho): No impact of growth rate in grossadvances in growth rate of NPA ratio

Regression study

Null hypothesis(Ho): No impact of growth rate in grossadvances in growth rate of NPA ratio


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Growth rate NPA ratio=27.37037-1.75Growth rate GA1% increase in Growth rate GA leads to 1.75% fall inGrowth rate NPA ratio

R-squared = 0.3529

Adj R-squared = 0.3067ANNOVA REGRESSION ANALYSIS

NPA ratio coefficient T value P>|t|Growth rate -1.759414 -2.76 0.015

There is a significant negative impact of growth rate ingross advances on growth rate in gross NPA of PSBs as theobserved t value=-2.76 is less than critical value of -2.13 at5% level of significance and so we reject our nullhypothesis.

GrowthrateNPAratio=28.52581 -1.78 Growthrate GA1% increase in Growth rate GA leads to 1.78% fall inGrowth rate NPA ratio of SCB

R-squared = 0.4501

Adj R-squared = 0.4109ANNOVA REGRESSION ANALYSIS

NPA ratio Coefficient T value P>|t|Growth rate -1.789216 -3.39 0.004

There is a significant negative impact of growth rate ingross advances on growth rate in gross NPA of SCBs as theobserved t value=-3.39 is less than critical value of -2.13at 5% level of significance and so we reject our nullhypothesis.


C) Analysis of impact of growth rate in gross NPA on growth rate in gross NPA ratio (PSB,SCB)(1998-2013)PSB SCB

Variables used GR_GNPA= growth rate in gross NPA.GR_GNPA ratio= growth rate in gross NPA ratio.

Correlation analysisCorrelation GR_GNPA

GR_GNPA ratio 0.9791There exist a positive correlation in the GR_GNPA andGR_GNPA ratio the magnitude of correlation is given byvalue 0.9791.

Correlation analysisCorrelation GR_GNPA

GR_GNPA ratio 0.9760There exist a positive correlation in the GR_GNPA andGR_GNPA ratio the magnitude of correlation is given byvalue 0.9760.

Regression study

Null hypothesis(Ho): No impact of GR_GNPA on GR_GNPAratio

GR_GNPA ratio=-17.23 +0.93 GR_GNPA1% increase in Growth rate GNPA leads to 0.93% rise inGrowth rate NPA ratio

R-squared = 0.958Adj R-squared =0.955

ANNOVA REGRESSION ANALYSISGR_GNPA

ratiocoefficient T value P>|t|

GR_GNPA 0.93 18.03 0.00

There is a significant positive impact of GR_GNPA onGR_GNPA ratio of PSBs as the observed t value=18.03 ismore than critical value of 2.13 at 5% level of significanceand so we reject our null hypothesis.

Regression study

Null hypothesis(Ho): No impact of GR_GNPA on GR_GNPAratio

GR_GNPA ratio=-17.86 +0.964 GR_GNPA1% increase in Growth rate GNPA leads to 0.96% rise inGrowth rate NPA ratio

R-squared = 0.952Adj R-squared =0.949

ANNOVA REGRESSION ANALYSISGR_GNPA

ratiocoefficient T value P>|t|

GR_GNPA 0.964 16.75 0.00

There is a significant positive impact of GR_GNPA onGR_GNPA ratio of SCBs as the observed t value=16.75 ismore than critical value of 2.13 at 5% level of significanceand so we reject our null hypothesis.



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D) Analysis of impact of growth rate in gross advance on growth rate in gross NPA (PSB, SCB) (1998-2013)

PSB SCBVariables used GR_GNPA= growth rate in gross NPA.

GR_GA= growth rate in gross advances.Correlation analysis

Correlation GR_GAGR_GNPA -0.4220

There is a negative and not very strong correlationbetween GR_GA, GR_GNPA for PSBs.

Correlation analysisCorrelation GR_GAGR_GNPA -0.4951

There is a negative and not very strong correlationbetween GR_GA, GR_GNPA for SCBs.

Regression study

Null hypothesis(Ho): No impact of GR_GA on GR_GNPA

GR_GNPA = 36.0503 -1.30GR_GA1% increase in Growth rate GA leads to 1.30% fall inGrowth rate NPA ratio

R-squared = 0.1781Adj R-squared = 0.1194

ANNOVA REGRESSION ANALYSISGR_GNPA coefficient Std

errorT value P>|t|

GR_GA -1.30 .74 -1.74 0.103The null hypothesis is rejected as there is a significantnegative impact of GR_GA on GR_GNPA of PSBs as theobserved t value=-1.74 is less than critical value of -1.753(15 degrees of freedom, n=16) at 10% level of significance.

Regression study

Null hypothesis(Ho): No impact of GR_GA on GR_GNPA

GR_GNPA = 37.49125 -1.335169GR_GA1% increase in Growth rate GNPA leads to 1.30 % rise inGrowth rate NPA ratio


ANNOVA REGRESSION ANALYSISGR_GNPA coefficient Std

errorT value P>|t|

GR_GA -1.33 .62 -2.13 0.051The null hypothesis is rejected as there is a significantnegative impact of GR_GA on GR_GNPA of SCBs as theobserved t value=-2.13is less than critical value of -1.753(15 degrees of freedom, n=16) at 10% level of significance.



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Analysis 4: Trends, descriptive analysis of all the sectors gross NPA

A) Trend analysis of ratio of gross NPA of sectors component of PS to gross NPA of PS (PSB, SCB) (1997-2013)PSB SCB

Variables used AGRI_PS=ratio of gross NPA of agriculture to gross NPA of priority sector.SSI _PS= ratio of gross NPA of SME to gross NPA of priority sector.OPS_PS= ratio of gross NPA of OPS to gross NPA of priority sector.

Descriptive figures on gross NPAVariable Mean Minimum MaximumAGRI_PS .3182922

(close to yr

1999)

.236165(yr 2009)

.4191641(yr 2013)

SME_PS .3604451(close to yr

2004)

.2295576(yr 2008)

.4293474(yr 2000)

OPS_PS .3212627(close to yr

2004)

.1876375(yr 2013)

.4748553(yr 2009)

Descriptive figures on gross NPAVariable Mean Minimum maximumAGRI_PS .3144889

(close to yr

1998)

.2524127(yr 2009)

.4126106(yr 2013)

SME_PS .3631183(close to yr

2010)

.2245504(yr 2008)

.4370545(yr 2001)

OPS_PS .3223928(close to yr

2004)

.1976695(yr 2013)

.4699273(yr 2007)

Source: RBI, MOFReference: analysis 4,(B),(C)

B) Descriptive analysis of ratio of gross NPA of sectors component of PS to gross NPA ( PSB) (1997-2013)Variables used AGRI_PS=ratio of gross NPA of agriculture to gross NPA of priority sector.SME_PS= ratio of gross NPA of SME to gross NPA of priority sector.OPS_PS= ratio of gross NPA of OPS to gross NPA of priority sector.

YEAR AGRI_PS SME_PS OPS_PS Max Min1997 0.353468 0.394533 0.251999 SME OPS1998 0.319314 0.409639 0.271047 SME OPS1999 0.318983 0.427682 0.253334 SME OPS2000 0.308743 0.429347 0.26191 SME OPS


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2001 0.305372 0.428022 0.266605 SME OPS2002 0.315126 0.417061 0.267812 SME OPS2003 0.309056 0.407466 0.283478 SME OPS2004 0.3037 0.370713 0.325587 SME Agri2005 0.310037 0.334865 0.355098 OPS Agri2006 0.277241 0.309175 0.413584 OPS Agri

2007 0.283456 0.254569 0.461975 OPS SME2008 0.326972 0.229558 0.443471 OPS SME2009 0.236165 0.28898 0.474855 OPS Agri2010 0.27004 0.374032 0.355928 SME Agri2011 0.350894 0.348367 0.300739 Agri OPS2012 0.403237 0.310359 0.286405 Agri OPS2013 0.419164 0.393198 0.187638 Agri OPS

From 1997-2004, the proportion of gross NPA of SME constituted the largest proportion in totalpriority sector gross NPA. While the trend reversed in 2005 to 2009 during which the largestproportion was OPS and from 20011 onwards, agriculture sectors share to PS gross NPA has beenthe highest.

Source: RBI, MOF

C) Descriptive analysis of ratio of gross NPA of sectors component of PS to gross NPA of PS ( SCB)(1997-2013)YEAR AGRI_PS SSI_PS OPS_PS Max Min1997 0.346742 0.400867 0.252391 SME OPS1998 0.311163 0.415126 0.273711 SME OPS1999 0.309028 0.434863 0.256109 SME OPS2000 0.300511 0.433746 0.265743 SME OPS2001 0.293437 0.437054 0.269509 SME OPS

2002 0.302151 0.432601 0.265248 SME OPS2003 0.299432 0.419647 0.280921 SME OPS2004 0.291568 0.385964 0.322468 SME Agri2005 0.29946 0.344364 0.356176 OPS Agri2006 0.269876 0.312578 0.417546 OPS Agri2007 0.282975 0.25127 0.465755 OPS SME2008 0.33528 0.22455 0.44017 OPS SME2009 0.252413 0.27766 0.469927 OPS Agri2010 0.284743 0.356809 0.358448 OPS Agri2011 0.355042 0.341689 0.303269 Agri OPS2012 0.39988 0.314504 0.285616 Agri OPS2013 0.412611 0.38972 0.19767 Agri OPS

From 1997-2004, the proportion of gross NPA of SME constituted the largest proportion in totalpriority sector gross NPA. While the trend reversed in 2005 to 2010 during which the largestproportion was OPS and from 2011 onwards, agriculture sectors share to PS gross NPA has beenthe highest. Only for the year 2010, the maximum share sector differed between SCBs and PSBs asthe maximum share in PSBs is of SME sector, and OPS of SCBs.

Source: RBI, MOF


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D) Trend analysis of ratio of gross NPA of PS, NPS to total sector gross NPA (PSB, SCB)(1997-2013)PSB SCB

Variables used PS_T=Ratio of gross NPA of total priority sector over gross NPA of total sector(priority sector+non-priority sector), NPS_T= Ratio of gross NPA of non-priority sector over gross NPA of total sector(priority

sector +non-priority sector)

Descriptive figures on gross NPAvariable Mean Min Max

PS_T .5096199(close to yr

2005)

.4438695(yr 2013)

.638549(yr 2008)

NPS_T .4903801(close to yr

1997 & 2012)

.361451(yr 2008)

.5561305(yr 2013)

Descriptive figures on gross NPAVariable Mean Min Max

PS_T .5096199(close to yr

2005)

.4438695(yr 2013)

.638549(yr 2008)

NPS_T .4903801(close to yr

1997 & 2012)

.361451(yr 2008)

.5561305(yr 2013)

Descriptive analysis of PS_T,NPA_T& analysis of year wise minimum, maximum share out

of PS_T, NPS_T (PSBs)YEAR PS_T NPS_T Min Max1997 0.497501 0.502499 PS_T NPS_T1998 0.487873 0.512127 PS_T NPS_T1999 0.47049 0.52951 PS_T NPS_T2000 0.454887 0.545113 PS_T NPS_T2001 0.453438 0.546562 PS_T NPS_T2002 0.461828 0.538172 PS_T NPS_T2003 0.472264 0.527736 PS_T NPS_T2004 0.475396 0.524604 PS_T NPS_T2005 0.499762 0.500238 PS_T NPS_T2006 0.540713 0.459287 NPS_T PS_T2007 0.599236 0.400764 NPS_T PS_T2008 0.638549 0.361451 NPS_T PS_T2009 0.548874 0.451126 NPS_T PS_T2010 0.538388 0.461612 NPS_T PS_T2011 0.580855 0.419145 NPS_T PS_T

Descriptive analysis of PS_T,NPA_T& analysis of year wise minimum, maximum share out

of PS_T, NPS_T (SCBs)YEAR PS_T NPS_T Min Max1997 0.481541 0.518459 PS_T NPS_T1998 0.460708 0.539292 PS_T NPS_T1999 0.437402 0.562598 PS_T NPS_T2000 0.425153 0.574847 PS_T NPS_T2001 0.417158 0.582842 PS_T NPS_T2002 0.39369 0.60631 PS_T NPS_T2003 0.39311 0.60689 PS_T NPS_T2004 0.416783 0.583217 PS_T NPS_T2005 0.444616 0.555384 PS_T NPS_T2006 0.485774 0.514226 PS_T NPS_T2007 0.52073 0.47927 NPS_T PS_T2008 0.521392 0.478608 NPS_T PS_T2009 0.415494 0.584506 PS_T NPS_T2010 0.444506 0.555494 PS_T NPS_T2011 0.498583 0.501417 PS_T NPS_T


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2012 0.499613 0.500387 PS_T NPS_T2013 0.44387 0.55613 PS_T NPS_T

2012 0.452839 0.547161 PS_T NPS_T2013 0.410518 0.589482 PS_T NPS_T

For PSBs, the share of gross NPA ratio of NPS in totalgross NPA ratio has been maximum from period 1997 to2005, while from 2006 to 2011 the share of prioritysector was maximum until the trend reversed again in

2012 and 2013.

For SCBs, the share of gross NPA ratio of NPS in totalgross NPA ratio has been maximum from period 1997 to2006 and 2009 to 2013. Only for period 2007, 2008 theNPA ratio has been high mainly because of the priority

sector gross NPA ratio.Source: RBI, MOF

E) Analysis of factors leading to growth rate in gross NPA ratio (PSB) (1998-2013) Variables used PS_GA=growth rate of gross advances of priority sector,

PS_NPA=growth rate of gross NPA of priority sector,PS_NPA ratio= growth rate of gross NPA ratio of priority sector,NPS_GA= growth rate of gross advances of non-priority sector,NPS_NPA= growth rate of gross NPA of non-priority sector,NPS_NPA ratio= growth rate of gross NPA ratio of non-priority sector

YEAR

PS_GA PS_NPA PS_NPAratio

High

(amongPS_GA,

PS_NPA)

NPS_GA NPS_NPA NPS_NPAratio

High

(amongNPS_GA,

NPS_NPA)1998 17.6 4.2 -11.4392 GA 15.8 8.3 -6.52141 GA1999 16.0 5.3 -9.23179 GA 12.4 12.9 0.469635 NPA2000 23.0 3.6 -15.7412 GA 16.0 10.3 -4.91903 GA2001 8.9 5.0 -3.52508 GA 20.8 5.6 -12.5813 GA2002 15.0 4.1 -9.45916 GA 16.1 0.7 -13.3274 GA2003 18.1 -0.8 -16.0669 GA 12.1 -4.9 -15.1563 GA2004 22.1 -4.4 -21.6894 GA 12.0 -5.6 -15.6786 GA2005 28.7 -1.9 -23.7183 GA 33.5 -11.0 -33.3361 GA

2006 32.8 -4.4 -27.9719 GA 30.0 -18.9 -37.5967 GA2007 26.5 2.6 -18.8949 GA 29.3 -19.2 -37.5484 GA2008 19.0 10.2 -7.42935 GA 26.0 -6.8 -26.0143 GA2009 17.0 -4.4 -18.2829 GA 27.4 38.8 8.90941 NPA2010 21.9 27.6 4.693776 NPA 18.6 33.1 12.24349 NPA2011 21.1 33.9 10.53392 NPA 22.2 12.7 -7.77648 GA2012 10.4 36.1 23.32774 NPA 18.9 88.9 58.88564 NPA2013 10.6 21.4 9.756765 NPA 15.5 51.9 31.57003 NPAThe fact that growth rate in NPA ratio is negative in some years and positive in some years depend onthe magnitude of growth rate of gross advances and growth rate of gross NPA. In years when growthrate in gross advances is higher than growth rate in gross NPA, the growth rate in gross NPA ratio isnegative and in years when growth rate in gross advances is lower than the growth rate in gross NPA,the growth rate in gross NPA ratio is positive.From year 2009 onwards, the growth rate in gross NPA ratio is positive and constantly rising, reachedits maximum growth rate at 23% for priority sector and 58% in non-priority sector in 2012. Measuresmust be taken to reduce NPA ratio growth rate as fast as possible. Aim should be to reduce growthrate in gross NPA and not growth rate in gross NPA ratio because growth rate in gross NPA ratio canbe reduced by stepping up growth rate of gross advances as well. Serious steps need to be taken toreduce gross NPA growth rate.

Source: RBI, MOF


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F) Analysis of factors leading to growth rate in gross NPA ratio (SCB) (1998-2013) Variables used PS_GA=growth rate of gross advances of priority sector,

PS_NPA=growth rate of gross NPA of priority sector,PS_NPA ratio= growth rate of gross NPA ratio of priority sector,NPS_GA= growth rate of gross advances of non-priority sector,NPS_NPA= growth rate of gross NPA of non-priority sector,NPS_NPA ratio= growth rate of gross NPA ratio of non-priority sector

YEAR

PS_GA PS_NPA PS_NPAratio

High(amongPS_GA,

PS_NPA)

NPS_GA NPS_NPA NPS_NPAratio

High(among

NPS_GA,NPS_NPA)

1998 17.4 5.10 -10.4778 GA 16.7 14.27 -2.06223 GA1999 16.8 6.29 -9.00631 GA 11.6 16.79 4.617816 NPA2000 24.1 4.63 -15.7091 GA 18.0 9.99 -6.80638 GA2001 9.6 6.00 -3.31768 GA 21.6 9.53 -9.92755 GA2002 14.7 6.70 -7.00718 GA 27.7 17.61 -7.89163 GA

2003 21.5 -1.65 -19.0378 GA 11.6 -1.41 -11.6288 GA2004 25.5 -3.82 -23.3959 GA 12.1 -12.82 -22.2218 GA2005 29.8 -2.57 -24.9169 GA 31.6 -13.03 -33.8978 GA2006 36.2 -3.51 -29.1553 GA 28.4 -18.23 -36.3323 GA2007 29.0 4.58 -18.9389 GA 28.2 -9.06 -29.0841 GA2008 19.7 11.53 -6.8106 GA 24.9 11.24 -10.9553 GA2009 16.5 -2.39 -16.246 GA 21.1 49.57 23.49831 NPA2010 19.5 28.29 7.404503 NPA 15.9 13.97 -1.69941 GA2011 20.6 29.04 6.981471 NPA 23.1 3.85 -15.6341 GA2012 11.7 32.30 18.46044 NPA 19.4 58.95 33.09395 NPA2013 12.6 20.17 6.737132 NPA 15.9 42.82 23.21588 NPA

The fact that growth rate in NPA ratio is negative in some years and positive in some years depend onthe magnitude of growth rate of gross advances and growth rate of gross NPA. In years when growthrate in gross advances is higher than growth rate in gross NPA, the growth rate in gross NPA ratio isnegative and in years when growth rate in gross advances is lower than the growth rate in gross NPA,the growth rate in gross NPA ratio is positive.The growth rate in gross NPA ratio is positive for priority sector from year 2010 onwards while for thenon priority sector, the growth rate in gross NPA is positive from 2012 onwards.

Source: RBI, MOF


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Analysis 5: Trend, correlation, regression analysis of growth rate of NPA ratio, growth rate in banks net profits,gross NPA ratio, net bank profits,NPA reduction .

A) Trend, correlation, regression analysis of analysis of growth rate in NPA ratio and growth rate in bankprofitability (PSB, SCB)( Year 1997-2013)

PSB SCB

Variables used- GR_P= Growth rate in profits, GR_NPA=Growth rate in NPA ratioCorrelation analysis

Correlation GR_NPAratioGR_P -0.1557

The correlation result shows no clear trend of strongnegative correlation between growth rate in PSBs profitsand growth rate of NPA ratio.

Correlation analysisCorrelation GR_NPAratio

GR_P -0.0979

The correlation result shows no clear trend of strongnegative correlation between growth rate in SCBsprofits and growth rate of NPA ratio.

Regression studyNull hypothesis(Ho):growth rate in NPA ratio has no

impact on growth rate of bank profits

GR_P=20.52919 + -.294049 GR_NPAratioThe regression analysis show that a 1% fall in GR_NPA

ratio will lead to .29% increase in GR_P.

ANNOVA REGRESSION ANALYSISGR_P coefficient T value P>|t|

GR_NPARatio

-.294049 -0.59 0.565

Since the generated statistics depicts that the nullhypothesis (no impact of growth rate of NPA ratio ongrowth rate of PSB bank profitability), is accepted at 10%,5% level of significance implying no significant negativeimpact of growth rate of NPA ratio on growth rate of PSBbanks profits.

Regression studyNull hypothesis(Ho): growth rate in NPA ratio has no

impact on growth rate of bank profits

GR_P=21.44763 +-.1861091 GR_NPAratioThe regression analysis show that a 1% fall in GR_NPAratio will lead to only .18% increase in GR_P.

ANNOVA REGRESSION ANALYSISGR_P coefficient T value P>|t|

GR_NPARatio

-.1861091 -0.37 0.718

Since the generated statistics depicts that the nullhypothesis (no impact of growth rate of NPA ratio ongrowth rate of PSB bank profitability), is accepted at10%, 5% level of significance implying no significantnegative impact of growth rate of NPA ratio on growthrate of SCB banks profits.

Source: RBI, MOFReference: appendix table no 5


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B) Trend, correlation, regression analysis of NPA ratio and bank net profits (PSB, SCB)( Year 1997-2013)PSB SCB

Variables used NPA ratio_PSB, SCB= gross NPA ratio of PSBs, SCBs.P_PSB,SCB= net profits of banks(PSB, SCB)

NPA ratio Net profits NPA ratio Net profits

Correlation analysisCorrelation NPA ratio_PSB

P_PSB -0.8293

There is very strong correlation between NPA ratio of PSBs,and PSBs net profits.

Correlation analysisCorrelation NPA ratio_SCB

P_SCB -0.7975

There is very strong correlation between NPA ratio of SCBs, and SCBs net profits.

Regression studyNull hypothesis(Ho): no impact of NPA ratio_PSB on P_PSB.

P_PSB=36974.39 -2174.655 NPA ratio_PSBThe regression analysis show that a 1 unit rise in NPA ratio of PSB leads to 2174.65 unit fall in P_PSB.


ANNOVA REGRESSION ANALYSISP_PSB coefficient T value Std

errorP>|t|

NPAratio_PSB

-2174.65 -5.75 378.3 0.00

There is significant negative impact of NPA ratio_PSB onP_PSB and the null hypothesis is rejected at 5% level of significance as the observed t value=-5.75 is less than criticalvalue of -2.13( n=17, degrees of freedom=16).

Regression studyNull hypothesis(Ho): no impact of NPA ratio_SCB onP_SCB.

P_SCB= 60354.73 -4038.189 NPA ratio_SCBThe regression analysis show that a 1 unit rise in NPA ratioof SCB leads to 4038.18 unit fall in P_SCB.


ANNOVA REGRESSION ANALYSISP_SCB coefficient T value Std

errorP>|t|

NPAratio_SCB

-4038.18 -5.12 788.65 0.000

There is significant negative impact of NPA ratio_SCB onP_SCB and the null hypothesis is rejected at 5% level of significance as the observed t value=-5.12 is less thancritical value of -2.13(n=17, degrees of freedom=16).

Source: RBI, MOFReference: appendix table no 6


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C) Trend, correlation, regression analysis of NPA reduction and banks net profits (PSB, SCB)( Year 1997-2013)PSB SCB

Variables used NPA reduction_PSB,SCB= NPA reduction in PSBs, SCBs.P_PSB,SCB=net profits of banks in PSBs, SCBs.

Correlation analysisCorrelation NPAred_PSB

P_PSB 0.9293

The correlation between P_PSB and NPAred_PSB is veryhigh and positive and the magnitude is 0.9293

Correlation analysisCorrelation NPAred_SCB

P_SCB 0.9492

The correlation between P_SCB and NPAred_SCB isvery high and positive and the magnitude is 0.9035

Regression studyNull hypothesis(Ho): no impact of NPAred_PSB onP_PSB

P_PSB= -6093.737 +1.28 NPA red_PSB1 unit reduction in NPA of PSBs leads to 1.28 unitincrease in PSB bank profits.


ANNOVA REGRESSION ANALYSISP_PSB coefficient T value P>|t|NPA

red_PSB1.28 6.66 0.000

There is significant positive impact of NPAreduction_PSB on P_PSB and the null hypothesis isrejected at 5% level of significance as the observed tvalue=6.66 is higher than critical value of 2.13( n=17,degrees of freedom=16).

Regression studyNull hypothesis(Ho): no impact of NPAred_SCB onP_SCB

P_SCB= -11425.3 +1.54 NPA red_SCB1 unit reduction in NPA of SCBs leads to 1.54 unitincrease in PSB bank profits.


ANNOVA REGRESSION ANALYSISP_SCB coefficient T value P>|t|NPA

red_SCB1.54 9.54 0.000

There is significant positive impact of NPAreduction_SCB on P_SCB and the null hypothesis isrejected at 5% level of significance as the observed tvalue=9.54 is higher than critical value of 2.13( n=17,degrees of freedom=16).

Source: RBI, MOFReference: Apendix, table no 1(NPA reduction), 6


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Analysis 6: Trend, correlation , regression analysis among gross advances and gross NPA of all the sectors

A) Trend, correlation, regression analysis of gross advances on gross NPA (agriculture)(1997-2013)PSB SCB

The gross NPA in the recent period has shot up for the agriculture sector for both PSBs, SCBs.

Descriptive figures on gross advances, gross NPAVariable Mean Min Max

GrossAdv

180811.5(close toyr 2007)

29095.95(yr 1997)

524006.9(yr 2013)

GrossNPA

9784.771(close toyr 2010)

5707.62(yr 2009)

28604.44(yr 2013)


Grossadv

217906.5(close toyr 2007)

30862.8(yr 1997)

636732.9(yr 2013)

GrossNPA

10733.47(close toyr 2010)

6717.88(yr 2006)

30786.35(yr 2013)

Correlation analysisCorrelation Gross NPAGross advances 0.8037

There is a strong correlation between gross NPA andgross advances in agriculture sector of PSBs and themagnitude of correlation is given by 0.8037

Correlation analysiscorrelation Gross NPAGross advances 0.8388

There is a strong correlation between gross NPA andgross advances in agriculture sector of SCBs and themagnitude of correlation is given by 0.8388

Regression study

Null hypothesis(Ho): gross advances has no impact ongross NPA of agriculture sector(PSBs)

Gross NPA= 4264.744 + .0305292 Gross advancesA 1 unit increase in Gross advances leads to 0.03 unitincrease in Gross NPA.

R-squared = 0.6459Adjusted R-squared = 0.6223

Regression study

Null hypothesis(Ho): gross advances has no impact ongross NPA of agriculture sector(SCBs)

Gross NPA= 4601.029 + 0 .0281425 Gross advancesA 1 unit increase in Gross advances leads to 0.028 unitincrease in Gross NPA.



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ANNOVA REGRESSION ANALYSIS

Since the observed t value=5.23 is much higher thancritical t value at 10%, 5% level of significance, weconclude that there is a significant impact of grossadvances on gross NPA in this sector for PSBs.

Gross NPA coefficient Tvalue

P>|t|

Grossadvances

.0305292 5.23 0.000


Since the observed t value=5.97 is much higher thancritical t value at 10%, 5% level of significance, weconclude that there is a significant impact of grossadvances on gross NPA in this sector.


P>|t|

Grossadvances

.0281425 5.97 0.000

Source: RBIReference: Appendix table no 7 and 8

B) Trend, correlation, regression analysis of gross advances on gross NPA (SME)(1997-2013)PSB SCB


Grossadv

138338.8(close toyr 2008)

30905.18(yr 1997)

461057.1(yr 2013)

GrossNPA

10552.89(close toyr 2002)

5804.75(yr 2008)

26832.49(yr 2013)


Grossadv

176996.5(close toyr 2008)

37261.98(yr 1997)

603958.9(yr 2013)

GrossNPA

11724.41(close toyr 2003)

6520.75(yr 2008)

29078.39(yr 2013)

Correlation analysisCorrelation Gross NPA

Gross advances 0.8103There is a strong correlation between gross NPA andgross advances in SME sector of PSBs and themagnitude of correlation is given by 0.8103


Gross advances 0.8147There is a strong correlation between gross NPA andgross advances in SME sector of PSBs and themagnitude of correlation is given by 0.8147.


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Regression studyNull hypothesis(Ho): gross advances has no impact on

gross NPA of SME sector(PSBs)

Gross NPA=6269.786 + .0309609 gross advances

A 1 unit increase in Gross advances leads to 0.03 unitincrease in Gross NPA.

R-squared =0.6566Adjusted R-squared = 0.6337


There is a significant impact of gross advances on grossNPA in SME sector as the observed t value is greater

than critical value and so the null is rejected at 1%, 5%level of significance.


P>|t|

Grossadvances

.0309609 5.36 0.000


gross NPA of SME sector(SCBs)

Gross NPA= 7223.423 + .0254298Gross advances




There is a significant impact of gross advances on grossNPA in SME sector of SCBs also as the observed t value

is greater than critical value and so the null is rejected at1%, 5% level of significance.


P>|t|

Grossadvances

.0254298 5.44 0.000


C) Trend, correlation, regression analysis of gross advances on gross NPA (other priority sector)(OPS)(1997-2013)PSB SCB

Correlation analysis

Correlation Gross NPAGross advances 0.9705

There is a very strong correlation between gross advancesand gross NPA in other priority sectors and the magnitudeof correlation is 0.9705

Correlation analysis

Correlation Gross NPAGross advances 0.9801

For the SCBs as well, there is a very strong correlationbetween gross advances and gross NPA in other prioritysectors and the magnitude of correlation is 0.9801.


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gross NPA of OPS sector(PSBs)

Gross NPA= 4844.459 + .0287641 Gross advances




There is a significant impact of gross advances on grossNPA in OP sectors as the observed t value is greater thancritical value and so the null is rejected at 1%, 5% level of significance.

Gross NPA Coefficient Tvalue

P>|t|

Grossadvances

.0287641 15.59 0.000


gross NPA of OPS sector(SCBs)

Gross NPA= 5299.201 + .0246719 Gross advances




For the SCBs as well, there is a significant impact of gross advances on gross NPA in OP sectors as the

observed t value is greater than critical value and so thenull is rejected at 1%, 5% level of significance.

Gross NPA Coefficient Tvalue

P>|t|

Grossadvances

.0246719 19.14 0.000

Source: RBIReference: Appendix table no 7 and 8.

D) Trend, correlation, regression analysis of gross advances on gross NPA (total priority sector, TPS)(1997-2013)PSB SCB

Descriptive figures on gross advances, gross NPA

Variable Mean Min Max

Grossadv

464894.2(close toyr 2007)

76732.83(yr 1997)

1260126(yr 2013)

GrossNPA

29374.28(close toyr 2010)

20237.07(yr 1997)

68241.62(yr 2013)

Descriptive figures on gross advances, gross NPA

Variable Mean Min Max

Grossadv

591160.3(close to yr2007)

87536.74(yr 1997)

1647748(yr 2013)

GrossNPA

32599.09(close to yr2008&2010)

21174.35(yr 1997)

74613.57(yr 2013)


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Gross advances 0.8513There is a strong correlation between gross advancesand gross NPA in total priority sectors and the

magnitude of correlation is 0.8513

Correlation analysiscorrelation Gross NPA

Gross advances 0.8803There is a strong correlation between gross advancesand gross NPA in total priority sectors and the

magnitude of correlation is 0.8803


gross NPA of TPS sector(PSBs)




There is a significant impact of gross advances on grossNPA in TPS sectors as the observed t value is greaterthan critical value and so the null is rejected at 1%, 5%level of significance.


P>|t|

Grossadvances

.0287673 6.28 0.000


gross NPA of TPS sector(SCBs)


R-squared =0.7750Adjusted R-squared =0.7600


For the SCBs as well, there is a significant impact of grossadvances on gross NPA in TPS sectors as the observed tvalue is greater than critical value and so the null isrejected at 1%, 5% level of significance.


P>|t|

Grossadvances

.0252002 7.19 0.000

Source: RBIReference: Appendix table no 7 and 8.

E) Trend, correlation, regression analysis of gross advances on gross NPA (Non priority sector)(1997-2013)PSB SCB


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Grossadvances

910603(close to

yr 2007)

145935(yr 1997)

2783926(yr 2013)

GrossNPA

29276.68(close toyr 2001)

14313.54(yr 2008)

85500.91(yr 2013)


Grossadvances

1237285(close to

yr 2007)

192002.4(yr 1997)

3712568(yr 2013)

GrossNPA

40937.87(close toyr 2009)

22797.74(yr 1997)

107141.1(yr 2013)


Gross advances 0.6901There is a strong and positive correlation between

gross advances and gross NPA of NP sector but not asstrongly correlated to each other as were the figures for

priority sectors.

Correlation analysiscorrelation Gross NPA

Gross advances 0.7968Similarly for SCBs, there is a strong and positivecorrelation between gross advances and gross NPA of NP sector but not as strongly correlated to each other

as were the figures for priority sectors. But theircorrelation for the SCBs is almost 1% higher than forPSBs.


gross NPA of NPS sector(PSBs)

Gross NPA= 16594.53 + .013927GrossadvancesA 1 unit increase in Gross advances leads to .013927unit increase in Gross NPA



As the observed t value is greater than critical value, sothe null is rejected at 1%, 5% level of significanceimplying that there is a significant impact of grossadvances on gross NPA in NP sectors.


P>|t|

Grossadvances

.0139272 3.69 0.002


gross NPA of NPS sector(SCBs)

Gross NPA=22355.75 + .015018 Gross advancesA 1 unit increase in Grossadvances leads to .015018unit increase in Gross NPA



Similarly for SCBs, there is a significant impact of grossadvances on gross NPA in NP sectors as the observed tvalue is greater than critical value and so the null isrejected at 1%, 5% level of significance.


P>|t|

Grossadvances

.015018 5.11 0.000



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Analysis 7: Trend, correlation, descriptive, regression analysis of reduction in NPA and its components(comparative analysis of PSBs, SCBs)

A) Reduction in NPA

A.1) Reduction in NPA (actual recovery +recovery due to up-gradation +recovery due to compromise

settlement)(PSB, SCB)(2001-2012)

The reduction in NPA has been constantly rising over a period of time for both PSBs, SCBs.

Source: RBIReference: Appendix table no 1.

Brief analysis of the above figures (2001-2012) (PSBs, SCBs)

Variable Mean Std. Dev. Max MinSCB 33919

(close to yr 2011)14996.17 62603

(yr 2012)16411

(yr 2001)PSB 24929.75

(close to yr 2009)9589.978 49998

(yr 2012)13629

(yr 2001)

A.2) Correlation analysis of NPA reduction with its components (2001-2012)

PSB SCB

Variable Reduction in NPADue to up-gradation 0.9644Due to compromise

settlement/ write off 0.8778

Actual recovery 0.9459

Variable Reduction in NPADue to up-gradation 0.9459Due to compromise

settlement/ write off 0.9702

Actual recovery 0.9329Source: RBI, MOF


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B) Actual recovery

B.1) Trend analysis of actual recovery (PSB, SCB) (2001-2012)

Variable used AR_PSB= actual recovery in PSBs. AR_SCB= Actual recovery in SCBs

Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012AR_PSB 6178 5806 6245 6928 9413 10518 9571 10246 11351 9911 14121 17271AR_SCB 7895 6812 7943 11065 12709 12925 11725 11970 14754 14146 18815 21849

The actual recovery in NPA of both PSBs, and SCBs has been constantly rising since 2001. However the growth rateof recovery in SCBs is higher as compared to growth rate of recovery in PSBs from 2010 onwards showing higherrecovery pick up from other category of SCBs such as (foreign, private sector banks).

B.2) Correlation analysis of actual recovery between PSBs, SCBs

Correlation AR_PSBAR_SCB 0.9764

B.3) Trend analysis of actual recovery (PSB to SCB ratio)(2002-2013)

Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012AR (PSB toSCB ratio) 0.78 0.85 0.78

(min)0.62 0.74 0.81 0.81

(max)0.85 0.76 0.70 0.75 0.79


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The ratio of actual recovery of PSB to SCB remained stagnant around .8 almost throughout the period from 2001 to2012(except for year 2005) implying that 80% of actual recovery in SCB is from PSBs.

Recovery effortCash recovery Banks, instead of organizing a recovery drive based on over dues, must short list those accounts,the recovery of which would provide impetus to the system in reducing the pressure on profitability by reduced

provisioning burden. Vigorous efforts need to be made for recovery of critical amount (overdue interest andinstallment) that can save an account from NPA classification.

C) Reduction in NPA due to up- gradation

C.1) Trend analysis of Reduction in NPA due to up- gradation (2001-2012)

Footnote: Variable used- due to up-gradation(PSBs, SCBs)-recovery in NPA due to up-gradation

Tabulation of the above figures

Variable used UPGD_PSB: recovery due to up-gradation in PSBs, UPGD_SCB:recovery due to up-gradation inSCBs.

Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

UPGD_PSB 1896 1824 3036 2469 3856 3787 3508 4439 8401 8838 11081 17176

UPGD_SCB 2070 2114 3619 3451 4206 4398 3972 4989 9607 10623 13620 19862The recovery due to up-gradation is consistently rising for both SCBs and PSBs. However the gap in recovery inPSBs and SCBs has diverged in 2009 but is stable.

C.2) Correlation analysis of reduction in NPA due to up-gradation between PSBs, SCBs

Correlation Up-gradation SCBUp-gradation PSB 0.9983

The correlation between recovery due to Up-gradation PSB and Up-gradation SCB is very strong at 0.9983


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C.3) Trend analysis of up-gradation ratio for the period (2001-2012)

Variable used (UPGD_ratio)upgradation_ratio=recovery due to Up-gradation of PSBs /recovery due to Up-gradation of SCBs

Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012UPGD_ratio 0.915 0.862 0.838 0.715 0.916 0.861 0.883 0.889 0.874 0.831 0.813 0.864The upgradation_ratio share of upgradation of PSBs in SCBs has declined over a period of time from 0.9 in 2001to .8 in 2012. It fell sharply in 2005 but later on picked up its share in SCBs recovery due to upgradation.

Recovery effortUp gradation of assets Once accounts become NPA, then bankers should take steps to up-grade them byrecovering the entire over dues. Close follow-up will generally ensure success.

D) Reductions in NPA due to compromise settlement/ write-off (2001-2012)

D.1) Trend analysis of recovery due to compromise/write off (PSB,SCB) for the period 2001-2012)

Footnote: Variables used= Compromise write off SCB, Compromise write off PSB

The recovery due to compromise settlement has not seen a sharp increase in the recent year. Prior to thathowever, there was a steady rise in compromise settlement recovery in PSBs, and so in SCBs.


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Tabulation of the above figures

Variable used- COMP_PSB=recovery due to compromise settlement, write off in PSBCOMP_SCB=recovery due to compromise settlement, write off in SCB

Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012COMP_PSB 5555 6428 9448 11309 8048 8799 9188 8018 6966 11185 17794 15551

COMP_SCB 6446 8710 11620 13560 10822 11657 11620 11653 15995 25019 23895 20892The recovery due to compromise write off in PSBs and SCBs has been consistently rising from 2001(since when thedata is available). For PSBs, it increased from 5555 cr to15551 cr. While for SCBs it increased from 6446cr to 20892cr. The divergence in recovery owing to compromise write off between PSBs and SCBs increased significantly after2009 implying that the recovery due to compromise write off in foreign banks and private banks increasedsignificantly but the difference remains stable since 2009.

D.2) Correlation analysis of reduction in NPA due to compromise/settlement write off between PSBs, SCBs

Variable Compromise write off SCBCompromise write off PSB 0.8056

The correlation between recovery due to compromise write off PSB and compromise write off SCB is strong at0.8056.

D.3) Trend analysis of compromise write off ratio for the period between 2001-2012

Variables used-compromisewriteoffratio=Compromise write off PSB/Compromise write off SCB

Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Compromisewrite-off ratio

.86 .73 .81 .83 .74 .75 .79 .68 .43 .44 .74 .74

The Compromise write-off ratio giving share of PSBs in SCBs in recovery due to compromise write off has beenconsistently falling from the period 2002 implying that the share of other component of SCBs i.e. foreign banks and

private banks has been consistently rising.

Recovery effortCompromise settlements Wherever feasible, in case of chronic NPAs, banks can consider entering intocompromise settlements with the borrowers.


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E) Impact of actual recovery, recovery due to up-gradation, recovery due to compromise settlement on NPAreduction for both PSBs, SCBs (2001-2012)

PSB SCBVariables used AR_PSB,SCB=actual recovery in PSBs,SCBs,

UPGD_PSB,SCB: recovery due to up-gradation in PSBs,SCBs

COMP/WO_PSB, SCB=recovery due to compromise settlement, write off in PSB,SCB

Regression analysis

1) Null hypothesis(Ho): no impact of AR_PSB onNPA reduction_PSB

NPAreduction_PSB=-4152.311 + 3.028154 AR_PSB1 unit rise in AR_PSB leads to 3.028154 unit increase

in NPAreduction_PSBR-squared = 0.8947

Adjusted R-squared = 0.8842ANNOVA REGRESSION ANALYSIS

At 95 % Confidence Interval, the t value (table) at 5%level of Significance=2.20(at 5% level of significance,N=12, degrees of freedom=11), is much less than theobserved t value=9.22 implying that null is rejected andso there is a significant impact of AR_PSB on NPAreduction_PSB

2)

Null hypothesis(Ho): no impact of COMPWO_PSB on NPA reduction_PSB

NPA reduction_PSB= -376.2395 + 2.626397COMPWO_PSB

1 unit rise in COMPWO_PSB leads to 2.626397 unitincrease in NPA reduction_PSB



At 95 % Confidence Interval, the t value (table) at 5%level of Significance=2.20(at 5% level of significance,N=12, degrees of freedom=11), is much less than theobserved t value=5.80 implying that null is rejected andso there is a significant impact of COMPWO_PSB onNPA reduction_PSB.

NPAreduction_PSB

Coefficient Tvalue

P>|t|

AR_PSB 3.028154 9.22 0.000

NPAreduction_PSB

Coefficient Tvalue

P>|t|

COMPWO_PSB 2.626397 5.80 0.000

Regression analysis

1) Null hypothesis(Ho): no impact of AR_SCB onNPA reduction_SCB

NPA reduction_SCB=-7197.911 + 3.233139 AR_PSB1 unit rise in AR_SCB leads to 3. 233139unit increase

in NPAreduction_SCBR-squared = 0.8958


At 95 % Confidence Interval, the t value (table) at 5%level of Significance=2.20(at 5% level of significance,N=12, degrees of freedom=11), is much less than theobserved t value=9.27 implying that null is rejected andso there is a significant impact of COMPWO_SCB onNPA reduction_SCB

2)

Null hypothesis(Ho): no impact of COMP/WO _SCB on NPA reduction_SCB

NPA reduction_SCB= 142.8664+2.357996COMP/WO_SCB

1 unit rise in COMPWO_SCBleads to 2.357996 unitincrease in NPA reduction_SCB

R-squared = 0.8703Adjusted R-squared =0.8574


At 95 % Confidence Interval, the t value (table) at 5%level of Significance=2.20(at 5% level of significance,N=12, degrees of freedom=11), is much less than theobserved t value=8.19 implying that null is rejected andso there is a significant impact of COMPWO_SCB onNPA reduction_SCB

NPAreduction_SCB

Coefficient Tvalue

P>|t|

AR_SCB 3.233139 9.27 0.000

NPAreduction_SCB

Coefficient Tvalue

P>|t|

COMPWO_SCB 2.357996 8.19 0.000


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3) Null hypothesis(Ho): no impact of UPGD_PSBon NPA reduction_PSB

NPA reduction_PSB=12257.05 +2.262439 UPGD_PSB1 unit rise in UPGD _PSB leads to 2.262439 unit

increase in NPA reduction_PSBR-squared = 0.9302


At 95 % Confidence Interval, the t value (table) at 5%level of Significance=2.20( 11 degrees of freedom,

n=12), is much less than the observed t value=11.54implying that null is rejected and so there is a significantimpact of UPGD_PSB on NPA reduction_PSB

NPAreduction_PSB

Coefficient Tvalue

P>|t|

UPGD_PSB 2.262439 11.54 0.000

3) Null hypothesis(Ho): no impact of UPGD_SCBon NPA reduction_SCB

NPA reduction_SCB= 15621.53 + 2.66045 UPGD_SCB1 unit rise in UPGD _SCB leads to 2.66045 unit

increase in NPA reduction_SCBR-squared =0.9413

Adjusted R-squared =0.9355ANNOVA REGRESSION ANALYSIS

At 95 % Confidence Interval, the t value (table) at 5%level of Significance=2.20( 11 degrees of freedom,

n=12), is much less than the observed t value=12.67implying that null is rejected and so there is a significantimpact of UPGD_SCB on NPA reduction_SCB

NPAreduction_SCB

Coefficient Tvalue

P>|t|

UPGD_SCB 2.66045 12.67 0.000

Source: RBI, MOF

Reference: appendix, table no 1(NPA reduction), 9


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Analysis 8: Trend, correlation, regression analysis of recovery due to up-gradation, compromise settlement &actual recovery on banks net profits.

A) Trend, correlation, regression analysis of recovery due to up-gradation on bank net profits (2001-2012)

PSB SCBVariables used P_PSB, P_SCB=profits of banks(PSB, SCB)

AR_PSB, AR_SCB =Actual recovery (PSB, SCB)

Correlation analysisCorrelation P_PSB

AR_PSB 0.8868

Correlation an

Documents

MINIMISING FRESH SLIPPAGE AND MAXIMISING RECOVERY A COMPARATIVE ANALYSIS OF NPA OF PSBs & SCBs