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The document studies the impact of non-performing assets (NPAs) on the profitability of HDFC Bank over an eight-year period. It finds a significant increase in NPAs, which correlates negatively with the bank's net profits and suggests that management practices need improvement to mitigate the risks associated with NPAs. The research concludes that rising NPAs threaten the financial stability of banks and underscores the necessity for effective management and strategies to reduce them.
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- 1. TO STUDY THEIMPACT OF NON- PERFORMING ASSETS ON THE PROFITABILITY OF HDFC BANK
- 2. TO STUDY THEIMPACT OF NON-PERFORMING ASSETS ON THE PROFITABILITY OF HDFC Bank PRESENTED BY BASIT GULAM REG NO: 11616516 SECTION Q1647
- 3. AbstrAct • To Assessthe NPAs of HDFC Bank • Impact of NPA on profitability of HDFC Bank. • Relationship between Total Advances, Net Profits, Gross and Net NPA. • The study uses annual reports of eight years from 2009-2010 to 2016-2017.
- 4. INDUstrY PrOFILE • Indianbanking and financial services company headquartered in Mumbai, Maharashtra. • It has 84,325 employees and has a presence in Bahrain, Hong Kong and Dubai. • HDFC Bank is India’s largest private sector lender by assets
- 5. MIssION AND vIsION •Become the undisputed market leader in providing housing related finances, to realize the dream of shelter for all in Sri Lanka" • “To our customers, our mission is to provide a caring service by anticipating their requirements and innovatively satisfying them beyond their expectations.”
- 6.
- 7. INtrODUctION • First Phaseof Economic liberalization in 1991 provides platform for credit management. • Primary function of banks is to lend loans to various sectors and receive deposits. • Guidelines of RBI by amending the banking regulation Act. • Certainty of repayment. • Mounting Non- Performing Assets.
- 8. Fig 1: AssetClassification Assets Performing Assets Standard Assets NonPerforming Assets (NPA) Sub -Standard Assets Doubtful Assets Loss Assets
- 9. Performing Asset • Anaccount does not disclose any problems and carry more than normal risk attached to the business. • All loan facilities which are regular.
- 10. non Performing Assets •Non Performing Asset means a loan or an account of borrower, which has been classified by a bank or financial institution as sub-standard, doubtful or loss asset, in accordance with the directions or guidelines relating to asset classification issued by RBI.
- 11. nPA tYPes • Sub-StandardAssets: An asset which has remained NPA for a period less than or equal to 12 months. • Doubtful Assets: An asset that has remained in the substandard category for a period of 12 months. • Loss Assets: An asset where loss has been identified by the bank or internal or external auditors or the RBI inspection but the amount has not been written off wholly.
- 12. With effect formMarch 31, 2004 a non-performing asset (NPA) shell be a loan or an advance where; interest and /or installment of principal remain overdue for a period of more than 90 days in respect of a Term Loan, the account remains 'out of order' for a period of more than 90 days, in respect of an overdraft/ cash Credit(OD/CC), the bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted, non Performing Assets
- 13. reAsons of nPA •Defaulter Friendly Legal System • Intentional misuse Of settlement policy of RBI. • Absence of structured monitoring Mechanism. • Lack of entrepreneurship. • Improper Discharge of Responsibilities
- 14. BAnkruPtcY lAw inindiA • The insolvency and Bankruptcy code 2016 (IBC) is the Bankruptcy Law of India. • It ensures time-bound settlement of insolvency, enables faster turnaround of business and creates a database of serial defaulters. • It was Passed by Lok Sabah in Dec 2015 . • The code received the assent of the President of India on May 2016.
- 15. Key Features • InsolvencyResolution • Insolvency Regulator • Insolvency professionals • Bankruptcy and insolvency adjudicator.
- 16. Financial crises andreasons • The 2008 financial crises was a turning point in the history of financial world. • Heightening awareness and concerns around asset quality. • Exists a trade-off between growth and quality and in the quest for growth quality had been compromised.
- 17. the india story •Indian Banks today are in a phase of rapid growth, with a credit to deposit ratio of 75% and an average annual credit growth of 15%. • Maintaining/increasing credit off-take to fuel GDP growth, while also ensuring quality is not compromised. • Systems to track and classify NPAs” By RBI way back in 2008. • Prudential norms on Income Recognition & Asset Classification (IRAC). • Increase transparency and consistency in financial reporting.
- 18. iMPacts oF nPa •Direct impact on bottom line. • Definite drop in retain earnings. • Forced to raise more tier 1 capital. • Inefficient utilization of resources • Low asset quality. • A higher level of provisioning, which in turn has a direct impact on bottom-line.
- 19. tyPes oF nPa GrossNPA : Gross NPAs are the sum total of all loan assets that are classified as NPAs as per RBI guidelines as on Balance Sheet date. Gross NPA reflects the quality of the loans made by banks. It consists of all the non standard assets like as sub-standard, doubtful, and loss assets.
- 20. • Net NPA: NetNPAs are those type of NPAs in which the bank has deducted the provision regarding NPAs. Net NPA shows the actual burden of banks.
- 21. ProbleM stateMent • GrossNPAs which stood at Rs 1.3 lakh Crore as on March 2012, have increased by a whopping 415.38% at Rs 6.7 lakh Crore as on September 2016. • As per the latest estimates by the SBI, education loans constitute 20% of its NPAs. The Lack of Bankruptcy code in India and sluggish legal system make it difficult for banks to recover these loans from both corporate and non- corporate. • Public Sector banks provide around 80% of the credit to industries and it is this part of the credit distribution that forms a great chunk of NPA. Last year.
- 22. OBJECTIVES • To comparethe Total Advances, Net Profit, Gross NPA & Net NPA of HDFC Bank. • To study the impact of NPA on banks. • To access the performance of Bank. • To study the relationship between Net profit and Net NPA of HDFC Bank.
- 23. HDFC Bank TOTaLaDVanCES COMPaRED WITH nET PROFIT, GROSS nPa & nET nPa. in crores Year TOTAL ADVANCES NET PROFIT/LOSS GROSS NPA NET NPA 2009-2010 23057.237 512 518.83 64.33 2010-2011 26193.63 615.2 516.6 53.24 2011-2012 33,077 803.25 516.6 49.34 2012-2013 39,200 1055.1 643.77 55.27 2013-2014 46,385 1182.47 783.44 101.99 2014-2015 44,586 509 2764.08 1236.32 2015-2016 46300.53 416.04 4368.62 2163.95 2016-2017 49816.11 -1632.29 6000.01 2425.37
- 24. RELaTIOnSHIP BETWEEn nETPROFITS & nET nPa OF HDFC Bank x y xy x 2 y2 2009-2010 512 64.33 32961.4054 262533.2644 3424.9292 2010-2011 615.2 53.24 32753.248 378471.04 2626.8616 2011-2012 803.25 49.34 39632.355 645210.5625 2727.0218 2012-2013 1055.1 55.27 58315.377 1113236.01 5636.9873 2013-2014 1182.47 101.99 120600.115 1398235.301 126092.28 2014-2015 509 1236.32 629286.88 259081 2675334.7 2015-2016 416.04 2163.95 900289.758 173089.2816 5248379.4 2016-2017 -1632.3 2425.37 -3958907.2 2664370.644 14915565 Σ 3,461 6149.81 -2145068.1 6894227.104 22979787 r= -0.71
- 25. RELaTIOnSHIP BETWEEn TOTaL aDVanCESanD nET nPa OF HDFC Bank x y xy x 2 y2 2009-2010 23057.237 64.33 1483272.056 531636178.1 3424.9292 2010-2011 26193.63 53.24 1394548.861 686106252.6 2626.8616 2011-2012 33,077 49.34 1632039.903 1094115714 2727.0218 2012-2013 39,200 55.27 2166606.661 1536672144 5636.9873 2013-2014 46,385 101.99 4730765.354 2151531117 126092.2768 2014-2015 44,586 1236.32 55122563.52 1987911396 2675334.664 2015-2016 46300.53 2163.95 100192031.9 2143739078 5248379.412 2016-2017 49816.11 2425.37 120822498.7 2481644816 14915564.68 Σ 308,616 6149.81 287544327 12613356696 22979786.83 r= 0.69
- 26. RESEaRCH FInDInGS • GrossNPA & Net NPA of HDFC Bank is increasing every year. • Total advances given by J&K and Net Profits are increasing continuously since 2011. • There is a negative correlation between Net Profits and Net NPA of bank. This shows that there is increase in the net profits of the bank but there is increase in the Net NPA also. • Total advances results in the increase in NPA’s Of HDFC Bank Ltd. • There is an adverse effect on the Liquidity of Bank. • If the NPA’s of HDFC Bank will continuously increase according to this rate then in future bank will not be able to provide loans to the customers.
- 27. RESEaRCH SUGGESTIOnS • Bankmanagement may possess specialized credit rating agencies to finalize the borrowing capacity of the potential borrowers before offering credit to the needy people. • Bank should exercise proper pre sanction scrutiny and post sanction supervision and control. • Bank should conduct loan recovery camp in certain time period. • Bank should provide training and awareness programs regarding the replacement of loans and effective use of funds.
- 28. COnCLUSIOn • The problemsof Non-performing assets (NPAs) are a serious issue and danger to Public banks as well as Private Banks, because it destroys the sound financial position of them. The customers and the public would not keep trust on the banks any more if the banks have higher rates of NPAs. So the problem of NPAs must be handled in such a manner that would not ruin the financial positions and affect the image of the banks. It finds that level of NPAs both gross and net is increasing. It also finds that there is a negative relationship between Total advances and Net NPA of HDFC Bank Ltd. This is because of mismanagement and wrong choice of client. To improve the efficiency and profitability, the NPA has to be reduced further.