Non-Performing Assets in India: A Comparative Analysis of Public and Private Sector Banks

Abstract

All types of economic activities revolve around money and credit. Banks are institutions that primarily perform two types of functions, namely, accepting deposits to create a pool of savings from people and granting loans out of the funds received. The Indian banking system, like most banking systems in the world, is characterized by the coexistence of different ownership groups, public and private, and within private, domestic, and foreign. Since the beginning of 2000, the Indian economy has been experiencing a growth momentum, however, after the Global Financial Crisis (GFC) in 2008, this growth rate was accompanied by rising Non- Non-Performing Assets (NPAs).  Govt. introduced prudential norms and structural reforms like demonetization, GST from time to time, and recently various monetary policy reforms like moratorium during a pandemic. The present study examined the presence of NPAs in the Public Sector Banks (PSBs) and Private Sector Banks (PVBs) from 2005 to 2021. We further examined the NPA levels in the top five banks in both PSBs and PVBs based on total asset size as of 31st Mar 2021. We used the ANOVA test in the study to perform a comparison between the above-mentioned groups. We found that i) post-GFC 2008, there has been an increasing trend in NPAs of both PSBs & PVBs, and in PSBs it is more in terms of absolute numbers; ii) the ratio of GNPAs over gross advances show that it was higher in PSBs as compared to PVBs except between 2008-2011. After this period, the GNPA ratio almost doubled or tripled in some cases as compared to PVBs. iii) A comparative analysis between NPAs of selected PSBs and PVBs, concludes that PSBs are more exposed to NPAs as compared to PVBs. There could be multiple reasons for this such as the twin-balance sheet problem, structural changes that the Govt would have taken, the govt. policies that have a direct impact on the financial sector, especially the nationalized banks, and advances granted by PSBs towards priority sector lending, which is mandated by the govt. for the PSBs to allocate funds for the economic development of the country through various sectors.