Asian Research Consortium

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1 Asian Research Consortium Asian Journal of Research in Banking and Finance Vol. 5, No. 4, April 2015, pp ISSN Asian Journal of Research in Banking and Finance Non Performing Assets in Public Sector Banks A Comparative study between SBI Group & Nationalised Banks Group Dr. L.K. Tripathi*; Arpan Parashar**; Dr. Rajendra Singh***; Dr. Shailendra Mishra**** Abstract *Coordinator, University Minority Cell, Devi Ahilya University, Indore, India. **Junior Research Fellow, School of Commerce, Devi Ahilya University, Indore, India. ***Head, School of Commerce, Devi Ahilya University, Indore, India. ****Assistant Professor, School of Commerce, Devi Ahilya University, Indore, India. DOI NUMBER: / X The growing Non Performing Assets in the banking industry in India is putting an immense pressure on profitability and credit creation capacity of banks. Particularly, the public sector banks in India are highly troubled by the trapped funds in NPA, borrowed from their depositors. In the present era of globalization where Indian banks are going to adopt BASEL-III norms, rising NPA is putting much strain on banks to meet the international standards of capital requirement. Further, the growing priority sector NPA has emerged as a serious concern for all public sector banks. The present study attempts to investigate into the relative impact of Priority Sector NPA, Non Priority Sector NPA and Public Sector NPA on Gross NPAs of SBI Group and Nationalised banks group. 19

2 Further, the composition of Priority Sector, Non Priority Sector and Public Sector NPA and their growth have also been compared. Finally, a comparative study of composition and growth of constituents of Priority Sector NPA such Agriculture NPA, NPA from SSI and Other Priority Sector NPA has been done. The results indicate significant impact of Priority and Non Priority sector NPA on Gross NPA of both banks group while the Other Priority Sector NPA found to be affecting Gross NPA of SBI Group only. Further, no significant difference was found between the compositions and growth of Priority, Non Priority and Other Priority Sector NPA of both banks group moreover, within Priority Sector, no significant difference was found between the composition and growth of Agriculture NPA, SSI NPA and Other Priority Sector NPA in both banks group. Keywords: Non Performing Assets, Priority Sector, Gross NPA, Regression Analysis, t-test. Introduction The banking sector plays a significant role in economic development of a country. A sound banking system is considered as indicator of strong financial fundamentals of a country. The primary function of bank is channelizing the funds from its savers to its borrowers. The banking system in India undergone a sea change after nationalization in 1969 and 1980 further economic reforms adopted in 1990s also added to the greater role of banking sector together with greater complexities. In a developing country like India, the role of banks is multidimensional. Here banks not only discharge their routine functions of accepting deposits and lending but also considered as a driver of economic growth and financial inclusion. With the growing globalization, banks are today expected to match the gap of demand & supply of capital along with keeping its financial fundamentals stronger. In the modern economic era banks are faced with various types of risks such as credit risk, interest rate risk, liquidity operational risk, market risk, exchange rate risk, settlement risk, counterparty risk, country risk etc. Amongst all credit risk is considered as the most detrimental to the growth and even existence of banks. Credit risk arises due to diminution in the credit quality of a borrower, In other words it is possibility that the borrower may fail to meet its financial commitments. Generally, every loan is considered as a good loan/ asset until and unless it shows some visible indications that the borrower may default in its repayment. Once it is crystallized that a loan is likely to become bad, the banks are mandatorily required to provide for such loan and tag it as non performing loan or a non performing asset. Non Performing Asset is the major cause of concern for almost all banks in India and obviously for the regulator RBI. Non performing asset refers to an asset which is no more generating any income for lending bank or a credit facility unable meet its repayment obligations as agreed upon by the borrower and lender. As per the Income Recognition and Asset Classification norms by RBI, NPA in respect of term loan, may be defined as situation where borrower fails to pay principal &/or interest thereon for a period of 180 days however, since March 2004 a loan is said to be non performing if dues are unpaid for the period of 90 days. Broadly speaking, any amount due to the bank under any credit facility is said to be overdue if it remains unpaid on the date fixed by the bank. 20

3 Reasons for Rising Non Performing Assets Non Performing Assets give signal to bank for taking early steps for preventing an advance turning into a bad asset. Though, banks cannot fully eliminate the risk of NPA, yet they can minimize the loss caused by taking early steps and through a proper risk management mechanism. There are various reasons which account for rising non performing asset, some reasons are controllable by banks and some are beyond control. These factors can be categorized into internal factors and external factors. Internal Factors: Internal factors are those factors which can be controllable by the banks through sound banking practises such as through study of borrower s profile, demanding adequate security or collaterals, providing for possible risks through risk instruments etc. These factors are- Defective lending policies Inappropriate technology Ineffective management supervision Poor credit appraisal system Absence of regular visits Inadequate training of recovery staff Poor project feasibility study Improper SWOT analysis etc. External Factors: These are the factors which inherently exist in an economy which sometimes cause a loan to be a non performing loan irrespective of due diligence practice exercised by the bank from preventing it to be a non performing loan. These factors are- Wilful defaults by borrowers Natural calamities Industrial sickness Lack of demand Change in Government policies Recession Ineffective recovery laws Political interference etc. 21

4 Statement of the Problem Non Performing Assets have become menace in the present economic scenario. Today, banks in India are not only supposed to discharge its routine functions of acceptance of deposit and lending but they are assigned with a greater function of financial inclusion, up-liftment of poor people, balanced economic growth and a channel of benefit transfer. After the independence, in order to pave the way for fundamentally strong path for India s success the primary emphasis in phased manner was given on agriculture, small scale industry and other sectors such as education, housing construction, export etc. These sectors are categorized as primary sector. The objective was to encourage the banks to lend to these sectors at cheaper rates with fewer constraints for promoting growth. Undoubtedly, India has made significant progress in these sectors however; growing problem of bad loans from these sectors has substantially demoralized the banking industry. At present the following are the broad categories of Priority Sector, as identified by the RBI: 1. Agriculture 2. Micro, small and medium enterprises (MSMEs) 3. Housing 4. Education 5. Export credit 6. Advances to weaker sections etc. In July 2012, RBI has issued broad guidelines for lending to priority sector and later in October 2012 some clarification were issued which are as under: 22

5 Target and Sub targets for Priority Sector Lending Categories Domestic commercial banks/ Foreign banks with 20 & above branches Total priority 40 per cent of the Adjusted Net sector Bank Credit (ANBC) or Credit Equivalent amount of Off Balance sheet Exposure (CEOBE), Agriculture sector whichever is higher. 18 percent of ANBC or CEOBE, whichever is higher, of this indirect lending in excess of 4.5 per cent of ANBC or CEOBE, whichever is higher, will not be reckoned for computing the target achievement of 18%. Foreign banks with less than 20 branches 32 percent of Adjusted Net Bank Credit (ANBC) or Credit Equivalent amount of Off Balance sheet Exposure (CEOBE), whichever is higher. No specific target was assigned but it forms the part of overall target. Micro & Small Enterprise Export Credit Advances to micro & small enterprise sector will be reckoned in computing the target achievement of 40% of ANBC or CEOBE whichever is higher. No separate limit was set for Export credit however credit to eligible activities under agriculture and MSE will be reckoned for the priority sector lending under respective categories. 10 per cent of ANBC or CEOBE, whichever is higher. No specific targets however it forms the part of total priority sector target. No specific targets however it forms the part of total priority sector target. Advances to No specific targets however it forms the weaker sections part of total priority sector target. Note: Foreign banks having 20 or more branches are required to achieve priority sector targets and sub targets within a maximum period of five years commencing from April 1, 2013 to March 31, Review of Literature Tripathi et al. (2014) studied the impact of priority sector advances, unsecured advances and advances to sensitive sector on Gross NPAs of SBI bank group and Nationalised bank group. On the contrary of having similar effect of these loans on Gross NPA of both banks group, they found that all these advances significantly affect the Gross NPAs of Nationalised banks while in case of SBI group only unsecured advances were found to be affecting Gross NPA. G. Nagarajan et al. (2013) analyzed the impact of priority sector lending on Gross and Net NPAs and NPA recovery status of public sector banks wherein they found significant impact of priority sector advances on NPAs of public sector banks further with regard to recovery of bad loans amongst the other mechanisms DRTs and SARFAESI were found to be most effective. 23

6 Samir et al. (2013) analysed the position of NPAs in State Bank of India (SBI), Punjab National Bank (PNB) and Central Bank of India (CBI). They also highlighted the policies adopted these banks to tackle the NPAs & suggested measures for speedy recovery NPAs. P. Raman (2013) found that the share of priority sector NPA to total NPA of banks have significantly risen from 46 per cent in to 52 per cent in N. Shabbir (2013) found that in order to reduce the risk of default in priority sector lending particularly agriculture banks have started preferring indirect lending to direct lending further private and foreign banks are extending less credit to SSI than public sector banks. Sambha et al. (2013) found the problem of NPA in public sector banks to be more serious than private sector banks. They further found that in 2007 the gross NPA from priority sector declined substantially possibly due to implementation of One Time Settlement scheme for agricultural loans but risen subsequently during 2008 to Srinivas K. T. (2013) analysed the priority sector, non priority sector and public sector NPAs of Nationalised banks and SBI Group for the period 2004 to 2013 wherein he found that in 2004 non priority sector contribution in total NPAs was far more than priority sector and public sector. From , priority sector contributed a major share in total NPAs of both banks group than non priority sector and public sector. In 2013 share of Non priority sector was high in total NPAs of public sector banks as compared to priority and public sector composition of NPAs of public sector banks. Patidar et al. (2012) examined the pattern of priority sector NPA between SBI Group, Old Private Sector Banks and New Private Sector Banks keeping NPAs of Nationalised banks as a benchmark. They found significant impact of priority sector lending on NPAs of public sector banks whereas its insignificant impact was on the private sector banks. Further, they observed significant difference between priority sector NPA between SBI group and Private sector banks keeping Nationalized banks as benchmark. Siraj et al. (2012) evaluated the management of NPA and explained the effectiveness of various recovery mechanisms in Scheduled Commercial Banks, such as DRT, Lok Adalats, and SARFAESI Act during the period to wherein, they found improvement in recovery of NPA during the period mainly due to SARFAESI and DRTs. Veerakumar (2012) found that the priority sector NPA are significantly affecting NPA of public sector banks than private sector banks and foreign banks whereas priority sector has no significant impact on total NPAs of banks. M. Karunakar et al. (2008) suggested proper credit assessment and risk management mechanism for tackling rising NPAs. In view of findings of the abovementioned studies the present research is an attempt to broaden the availability of knowledge in this regard. 24

7 Objectives of the Study The objectives of the present study are as following: 1. To explore different factors affecting NPAs of public sector banks. 2. To explore the relative influence of Priority Sector NPA, Non Priority Sector NPA and Public Sectors NPA on Total NPAs of SBI group and Nationalised banks. 3. To study the sector wise composition pattern and growth of NPAs of SBI group and Nationalised banks. 4. To study the composition pattern and growth of Priority sector NPA of SBI Group and Nationalised Banks Group. Hypothesis 1. There is no significant impact of Priority Sector NPA, Non Priority Sector NPA and Public Sector NPA on Gross NPA of SBI Group and Nationalised Banks Group. 2. There is no significant difference in composition of Priority Sector NPA, Non Priority Sector NPA and Public Sector NPA between SBI Group and Nationalised Banks Group. 3. There is no significant difference in growth of Priority Sector NPA, Non Priority Sector NPA and Public Sector NPA between SBI Group and Nationalised Banks Group. 4. There is no significant difference in composition of Agriculture NPA, SSI NPA and Other Priority Sector NPA between SBI Group and Nationalised banks. 5. There is no significant difference in growth of Agriculture NPA, SSI NPA and Other Priority Sector NPA between SBI Group and Nationalised banks. Research Methodology The present study is of descriptive nature and is based on secondary data source. The study uses the sample data covering the period of fifteen years from to For the purpose of study data has been collected from various sources such as Reserve Bank website, reports, public sector bank s website, banking journals etc. In order to draw more meaning conclusions basic analysis tools such as percentages, ratios etc. have been used and for testing hypothesis some advanced statistical tests such as Pearson s Correlation, Multiple Regression (Galton 1877) & Independent T test have been employed using SPSS

8 Priority Sector % to Total Table: 01 COMPOSITION OF NPAs OF SBI GROUP TO Non- AGR % to AGR Public % to AGR Priority % Total % Sector Total % Sector TOTAL % to Total Year MEAN SD CV R R AAGR (%) CAGR (%) Source: (RBI) Report on Trend and Progress of Banking in India, various issues. AGR % 26

9 Comment on the Composition of NPA: Table 1; given above shows yearly figures of priority sector NPA, Non Priority Sector NPA and Public sector NPAs of SBI Group. It can be seen from the above table that Priority Sector NPA which was 44.60% of total NPA of SBI Group in 1999 remained almost same in 2013 at 44.09% but it witnessed slight upsurge in the year 2002 and remained constant till 2005 in 2006 it surged to 54.95% of total NPA of total NPA of SBI Group from 47.39% in the previous year It remained at the almost same level till 2008 and then started declining to 50.11% in 2010 then it rose again in 2011 but declined to 52.33% in 2012 and finally touched almost the same level where it was in Non priority sector NPA which was at 51.90% in 1999 experienced decline to in 2003 and significantly decreased to 44.10% in 2006 thereafter sharp rise in 2009 to 51.75% with subsequent decline and finally rose gradually to in Public sector NPA which was 3.50% of total NPA of SBI Group in 1999 shoot up sharply to 6% in 2001 which significantly tumbled to 2.56% in 2002 it further declined gradually to 1.50 and finally started tumbling to 0.05% of total NPA of SBI Group. Comment on the Growth of NPA: The table 1; given above also depicts the yearly growth of NPA of different sectors of SBI group. The priority sector NPA which had 7.56% growth rate in 2000 as compared to previous year register sharp decline with registering negative growth of % in 2004 which again sharply rose to 3.32% and in 2008 it touched the mark of 24.06% perhaps due to prevailing economic slowdown due to Sub Prime Lending Crisis. In 2009 it tumbled dramatically to -5.11% and then registered upsurge in 2010 and in 2012 priority sector NPAs sharply registered 53.60% rise and declined to 10.59% in The mean NPA during the period was Rs crores with a Standard deviation of Rs crores having Coefficient of Variance of 55.32%. The value of R was 0.98 thus shows high correlation with total NPA of SBI Group. Further, the value of R 2 shows that 97% of the variation in total NPA is attributable to priority sector NPA. The average annual growth of priority sector NPA during the period stood at 10.13% while the compounded annual growth rate was 8.61%. Non Priority Sector NPA was at 6.19% year on year growth in 2000 registered a sharply negative growth rate of % and % in 2007 which finally registered strong positive growth in Finally in 2013, it also declined to 53.93% from 73.14%. The Mean Non Priority Sector during the period stood at Rs crores thus, slightly higher than Mean Priority Sector lending and having a highest standard deviation of Rs crores with a Coefficient of variation of 64.93%. The value of R 0.99 shows its high correlation with total NPAs. Futher the value of R 2 is 0.98 shows that 98% of the change in total NPA is attributable to it. The average annual growth rate during the period stood at 12.29% while the compounded annual growth rate had been 9.28%. The public sector NPA which was % as compared to previous year 1999 registered a strong growth of % in the next year thereafter it declined to % further, it rose slightly in 2004 then after consecutive decline to % in 2006 it grew to 50.40% in the next year then except in year 2008 and 2011 the public sector NPA remained at positive trend with a strong growth in 2012 with % as compared to previous year finally with a sharp declined to 24% from previous year. 27

10 The mean NPA from public sector NPA was Rs crores with a standard deviation of Rs crores and thus having high coefficient of correlation of %. It is interesting to see that it is negatively correlated to total NPA with having very small value of R 2 thus having very subtle effect on the total NPA of SBI group. It has 23.15% of annual growth rate with a negative compounded annual growth rate of %. The overall average annual growth of total NPA of SBI Group was 10.44% with a compounded annual growth rate of 8.70%. 28

11 Priority Sector % to Total Table: 02 COMPOSITION OF NPAs OF NATIONALISED BANKS Non- AGR % to AGR Public % to Priority % Total % Sector Total Sector AGR % TOTAL % to Total Year MEAN SD CV R R AAGR (%) CAGR (%) Source: (RBI) Report on Trend and Progress of Banking in India, various issues. AGR % 29

12 Comment on the Composition of NPA: the composition of priority sector NPA of Nationalised banks remained almost slopped during the period under study. It stood at 43.21% of total NPA of Nationalized banks group thereafter started rising gradually it was at its height of 66.80% in 2008 and gradually started descending and finally touched the mark of 42.21% even below the level it was in The share of non priority sector NPA which was at 54.25% of total NPA remained decreasing till 2009 thereafter it registered small growth to 43.09% in 2010 and again it sharply increased to 57.71% in The other priority sector NPA which was 2.54% of total NPA of Nationalised banks registered gradual decline during the period under consideration except for the year 2008 and 2010 at the end of 2013 it stood at meagre 0.08% of total NPA of Nationalised banks group. The total NPA of public sector bank increased almost three fold during the period from Rs crores to Rs crores. Comment on Growth Rate of NPA: In the initial period the year on year growth rate of priority sector remained in single digit with the highest growth rate of 4.40% in Thereafter it experienced negative growth to -7.67% in After registering negative growth of -3.14% in 2009 it witnessed a sharp increase in 2010 since then it almost maintained 25% of the total NPA Nationalised bank group. The Mean NPA of priority sector during the period was Rs crores with standard deviation Rs crores having a Coefficient of Variation of 38.87%. The value of R 0.96 indicates that is highly positive correlated with total NPA with the value of R shows that shows that 92% of the change in total NPA is attributable to Priority sector NPA. Non priority sector NPA which was almost 2% in 1999 registered quite variations in its year on year growth. It witnessed sharp decline to % in 2008 further registered a sharp increase % in 2012 with sharp decline in 2013 and stood at 61.34%. The mean Non priority lending during the period was Rs crores with a standard deviation of Rs crores. It is in a high positive correlation with Total NPA of and 96% of the change in total NPA is attributable to Non priority sector NPA. The other priority sector NPA has ever been under negative growth except for the year 2007 and In 2013 it registered 59.38% decline in growth as compared to previous year NPA figure. During the period under study it registered a negative average annual growth rate of % with a negative compounded annual growth rate of %. Finally the mean total NPA during the period stood at Rs crores with a standard deviation of Rs crores having a coefficient of variation of 47.89%. The total NPA during the period witnessed average annual growth rate of 9.62% with a compounded annual growth rate of 7.90%. 30

13 Table: 03 COMPOSITION OF PRIORITY SECTOR NPA OF SBI GROUP Annual Annual Growth % to Growth % to (%) SSI Total (%) OPS Total Annual Growth (%) TOTAL Annual Growth (%) % to YEAR AGRI Total MEAN SD CV (%) R R AAGR (%) CAGR (%) Source: (RBI) Report on Trend and Progress of Banking in India, various issues. 31

14 Comment on the NPA Composition: Priority sector lending to Agriculture sector which was at 36.38% of total NPA of total Priority Sector Lending increased sharply to 41.04% in 2001 tumbled gradually to 31.75% in 2009 thereafter it rose again to 43.08% and at the end of the period under consideration it touched the mark of 34.41% of the total Priority sector NPA of SBI Group. NPA from SSI Sector which was almost half of the total NPA of SSI Sector tumbled gradually to the lowest of 17.05% in 2008 which again rose to 33.35% in 2011 and thereafter declined to in NPA from Other Priority Sector which were lowest amongst all priority sectors NPA in 1999 gradually went to above half of the total NPA of public sector lending in 2008 further declined to 27.86% in 2012 and finally rose sharply to 43.49% of the total NPA. In 2013 the total NPA which were Rs crores in 1999 shoot upto Rs crores almost 13 times of the level stood in Comment on the NPA Growth: On analysing the year on year sector wise growth rate of priority sector NPA it was found that the yearly growth rate of Agriculture sector was 9.57% in 1999 took a declining trend to -7.58% in 2004 rose slightly to 1.86% in 2005 then after experiencing ups and downs it finally closed on % decline as compared to the year The SSI NPA has always been in a negative trend excepting the year 2010 and Further the other priority sector has always been in a positive trend excepting the year 2006 and Finally, the total NPA has been in a upward trend excepting the year 2006 and The mean Agriculture NPA was Rs crores during the period with a standard deviation of Rs crores having a higher Coefficient of Variance of 76.39%. the value of R 0.98 shows that it was in a high positive correlation with total NPA of priority sector and R shows that 96% of the change in total priority sector NPA is accounted by Agriculture sector NPA. The Average Annual Growth Rate was 24.53% during the period while the compounded annual growth rate stood at 20.15%. Futher, as regards SSI the mean lending of SSI sector during the period was Rs crores with a standard deviation of Rs crores having a high coefficient of variance of percent. The value of Coefficient of Correlation (R) 0.94 shows that it was in a high positive correlation with total priority sector NPA. While R 2 value 0.88 shows that 88% of the change in total NPA is attributable to the change in SSI sector NPA. The average annual growth rate of NPA at 26.38% remained lowest amongst other priority sectors along with compounded annual growth rate which was stood at 15%. The mean NPA from other priority sector during the period was crores with a standard deviation of Rs while the coefficient of variance was higher at 86.23%. the value of coefficient of correlation (R) 0.94 shows that it was in a high positive correlation with total priority sector lending while the value of coefficient of determination (R 2 ) shows that 88% of the change in total priority sector NPA is attributable to change in other priority sector NPA. The average annual growth rate was 35.71% while the compounded annual growth rate remained at 28% during the period under study. 32

15 The overall average annual growth rate of priority sector NPA of SBI group was 25.79% while the compounded annual growth rate stood at 21%. Table: 04 COMPOSITION OF PRIORITY SECTOR NPA OF NATIONALISED BANKS YEAR AGRI % AGR (%) SSI % AGR (%) OPS % AGR (%) TOTAL % AGR (%) MEAN SD CV (%) R R AAGR (%) CAGR (%) Source: (RBI) Report on Trend and Progress of Banking in India, various issues. 33

16 Comment on the NPA Composition: the priority sector NPA of Nationalised banks which were 35.94% of the total Priority Sector NPA in 1999 witnessed a gradual upsurge till 2007 in 2008 its composition went down to 28.29% but thereafter it recovered and at the end of year 2013 it stood at 31.95% of the total NPA of Priority Sector. NPA from Small Scale Industry sector which was almost 40% of the total Priority Sector NPA in 1999 went down gradually to 17.67% in 2008 thereafter it grew sharply and at the end of the year 2013 it stood at 32.81% of the total NPA of priority sector lending. Lending to other priority sector which was 24.74% of the total priority sector NPA in 1999 rose gradually to the height of 54.04% in 2008 thereafter it declined sharply to 20.19% in 2012 and recovered to 35.24% in the year Comment on the NPA Growth: Amongst the all the constituents of priority sector the year on year growth of Agriculture sector was 13.08% in the year 1999 which rose sharply to 24.97% in 2002 then after tumbling to 19.95% in 2004 it rose to 32.80% in the year 2007 thereafter gradually it tumbled down to 13.03% in the year The mean NPA from Agriculture during the period was Rs crores with a high standard deviation of Rs crores having a high coefficient of correlation of 80.11%. The value of Coefficient of Correlation was higher at.97 with the R 2 of.94 it means that 94% of the change in total NPA is accounted for change in Agriculture sector NPA. The average annual growth rate stood during the year at 21.39% while the compounded annual growth rate was 21.14% during the period under study. From the mark of 7.70% in the year 1999 the annual growth rate of SSI sharply rose to 44.89% in the year 2008 and after decline to 30.97% in the next year and subsequent year upsurge to 52.68% it tumbled to 21.80% in the year The mean NPA from SSI during the period was Rs crores with a standard deviation of Rs crores having highest amongst all coefficient of variance of 97.86%. Again it was in a high positive correlation with total NPA of Priority sector while the value of coefficient of determination stood at 0.88 signifying 88% of the change in total NPA is alone accounted by SSI Sector NPA. NPA from other priority sector which was stood at 27.63% in the year 1999 surged gradually to % in the year 2008 after having a sharp decline to 6.51% and % in the year 2009 and 2010 respectively it grew sharply to % at the end of year The mean NPA from other priority sector stood at Rs crores during the period with a standard deviation of Rs crores the high value of coefficient of variation shows high variability in SSI NPA during the period while high correlation along with high coefficient of determination shows high influence of other priority sector NPA on total NPA of Nationalised banks. The annual growth rate of total priority sector NPA which was stood at 14.57% in the year 1999 grew gradually to 68% in the year 2008 thereafter it tumbled down sharply to % and finally at the end stood at the annual growth rate of 44.57% compared to previous year. The average annual growth rate of total priority sector NPA was 22.35% during the period while the compounded annual growth rate stood at 22.17%. 34

17 Empirical Testing Procedure In order to study the relative impact of priority sector NPA, Non Priority Sector NPA and Public sector NPA on Gross NPA of both bank s group, Correlation test and Multiple Regression Analysis (Galton, 1877) was employed taking the year on year (yoy) growth rate of Gross NPA as a dependent variable and year on year (yoy) growth rate of sectoral NPA as independent variables. Further to make a comparative study of sector wise NPA and Priority Sector NPA independent t test has been employed. For SBI Group: Table:05 Correlations GNPA PSNPA NPSNPA PUBSNPA Pearson Correlation **.722 **.176 GNPA Sig. (1-tailed) N Pearson Correlation.809 ** *.382 PSNPA Sig. (1-tailed) N Pearson Correlation.722 **.600 * * NPSNPA Sig. (1-tailed) N Pearson Correlation * 1 PUBSNPA Sig. (1-tailed) N **. Correlation is significant at the 0.01 level (1-tailed). *. Correlation is significant at the 0.05 level (1-tailed). The Table 05 given above depicts the values of correlation between Gross NPA growth of SBI group and corresponding sectorwise growth of independent variables viz. Priority Sector NPA, Non Priority Sector NPA and Public Sector NPA. The results show high degree correlation between growth of Gross NPA and Priority Sector NPA and Gross NPA and Non Priority Sector NPA while Public Sector NPA was found to be in low correlation with the Gross NPA growth during the period under study. Table: 06 ANOVA a Model Sum of df Mean Square F Sig. Squares 1 Regression b Residual Total a. Dependent Variable: GNPA b. Predictors: (Constant), PSNPA, NPSNPA, PUBSNPA 35

18 Table 06, given above shows the values of ANOVA test. As the p value of the test statistic is well below our assumed level of significance thus the goodness of fit of our model is validated and now Regression test can be employed. Table: 07 Model Summary b Model R R Square Adjusted R Std. Error of the Durbin-Watson Square Estimate a a. Predictors: (Constant), PSNPA, NPSNPA, PUBSNPA b. Dependent Variable: GNPA Table 13 given above shows high correlation value of between the growth of Gross NPA as a dependent variable and the growth of independent variables viz. Priority Sector NPA, Non Priority Sector NPA and Other Priority Sector NPA. The value of R indicates that 86% of the change in Gross NPA is attributed to the Change in independent variables as mentioned above. Table: 08 Coefficients a Model Unstandardized Standardized t Sig. Collinearity Coefficients Coefficients Statistics B Std. Error Beta Tolerance VIF (Constant) PSNPA NPSNPA PUBSNPA a. Dependent Variable: GNPA The Coefficients table given above gives coefficient values of independent variables as the respective p values Priority Sector NPA, Non Priority Sector NPA and Public Sector NPA are less than our assumed level of significance i.e. 5% at which hypothesis is being tested it is concluded that there is a significant impact of growth of Priority Sector NPA, Non Priority Sector NPA and Public Sector NPA on the growth of Gross NPA of SBI group. The beta values of un standardized coefficient indicate high influence of Priority Sector NPA growth followed by Non Priority Sector NPA growth on Gross NPA growth while, Public Sector NPA was found to be negatively influencing Gross NPA thus we can construe that SBI need to pay high attention on Priority Sector NPA and Non Priority Sector NPA while Public Sector NPA is not a matter of grave concern for the bank. Further, the values of VIF are below 5 and Tolerance is above 0.20 respectively for all sectors NPA thus it indicates the absence of multi co-linearity amongst independent variables. 36

19 For Nationalised Banks Group Table: 09 Correlations GNPA PSNPA NPSNPA PUBSNPA Pearson Correlation **.836 ** GNPA Sig. (2-tailed) N Pearson Correlation.876 ** ** PSNPA Sig. (2-tailed) N Pearson Correlation.836 **.736 ** NPSNPA Sig. (2-tailed) N Pearson Correlation PUBSNPA Sig. (2-tailed) N **. Correlation is significant at the 0.01 level (2-tailed). Table 09 given above explains the correlation between the growth of Gross NPA and Priority Sector NPA, Non Priority Sector NPA and Public sector NPA for Nationalised bank group. It can be seen from the above table that Priority Sector NPA and Non Priority Sector NPA growth are in a high positive correlation with Gross NPA while Public Sector NPA growth is negatively correlated with Gross NPA growth. Table: 10 ANOVA a Model Sum of Squares Df Mean Square F Sig. Regression b 1 Residual Total a. Dependent Variable: GNPA b. Predictors: (Constant), PSNPA, NPSNPA, PUBSNPA Before proceeding ahead for regression analysis, the goodness of fit of the model was tested by employing ANOVA test. The significance value or p-value of the test statistic is which obviously the level of significance at which we are testing hypothesis i.e. 5%. Thus it ensures the validity of the model and now regression analysis can be employed. Table: 11 Model Summary b Model R R Square Adjusted R Std. Error of the Durbin-Watson Square Estimate a a. Predictors: (Constant), PSNPA, NPSNPA, PUBSNPA b. Dependent Variable: GNPA 37

20 From the Table 11 given above the value of Coefficient of Correlation (R) explains high degree of correlation between the dependent and independent variables of the model. Further the value of Coefficient of Determination (R 2 ) shows that 85.1% of the change in growth of Gross NPA is explained by change in growth of Priority Sector NPA, Non Priority Sector NPA and Other Priority Sector NPA. Table:12 Coefficients a Model Unstandardized Standardized t Sig. Collinearity Coefficients Coefficients Statistics B Std. Error Beta ToleranceVIF (Constant) PSNPA NPSNPA PUBSNPA a. Dependent Variable: GNPA The table 12 given above gives the Coefficients, t value and Co-linearity statistics of independent variable viz. Priority Sector NPA, Non Priority Sector NPA and Public Sector NPA of Nationalised banks group. The respective significance values of Priority Sector NPA and Non Priority Sector NPA are well below our level of significance i.e. 5% thus both these significantly influence the growth of Gross NPA in Nationalised banks while surprisingly, p-value Public Sector NPA is above 5% thus we can conclude that there is no significant impact of Public sector NPA on the Gross NPA of Nationalised banks. Further, the VIF values of all independent variables are below 5 thus it indicates the absence of multi co-linearity among the independent variable of our model. Finally, the Unstandardized beta coefficient shows highest influence of growth of Priority Sector NPA on Gross NPA and followed by Non Priority Sector NPA of Nationalised Banks Group however, again Public Sector NPA is found to be having negative influence on the growth of Gross NPA of Nationalised banks. Thus, Nationalised banks need to seriously tackle the growth of Priority Sector NPA and Non Priority Sector NPA while Public Sector NPA growth is not a matter of that much concern for the Nationalised banks group. Now, Sector wise NPA composition i.e. Priority Sector NPA, Non Priority Sector NPA and Public Sector NPA composition to Total NPA composition of both banks were analysed to see whether the NPA pattern in both bank group are similar of there exist any significant difference between them. For the purpose of study Independent T test has been employed between the sector wise NPA compositions. 38

21 T-Test Results Table: 13 For Sector wise NPA composition Sector Priority Sector NPA Non Priority Sector NPA Public Sector NPA Equal Variance Assumption Levene's Test For t-test for Equality of Means Equality of Variance F Sig. t df sig. (2- tailed) Not Assumed Not Assumed Not Assumed From the table 13 given above it can be seen that for all the cases the Levene s test static for homogeneity of variances has been less than our assumed level of significance thus the results of t test have been analysed assuming unequal variance. Further for t test the significance values in all the cases are much above than 5% level of significance thus our null hypothesis is not rejected and it can be concluded that there is no significant difference between sector wise NPA compositions of both banks. Now the sector wise NPA growth rate of both banks have been analysed to see whether there is any significant difference between the annual sector wise NPA growths of both banks group. Table: 14 For Sector wise NPA Growth Sector Priority Sector NPA Growth Non Priority Sector NPA Growth Public Sector NPA Growth Variance Assumption Equal Variance Assumed Equal Variance Assumed Equal Variance Not Assumed Levene's Test t-test for Equality of Means for Equality of Variance F Sig. t Df sig. (2-tailed) The significance values Levene s test statistic for Priority Sector NPA growth, Non Priority Sector NPA growth indicates the homogeneity of variance while in case of public sector NPA it indicate non homogeneity of variance thus the results of t test results for Priority Sector growth and Non Priority Sector growth have been analysed assuming equal variance while the t test results for Public Sector NPA growth have been analysed assuming unequal variance. As the significance values of t statistic in all the cases is much above than our assumed level of significance i.e. 5% 39

22 thus the null hypothesis set earlier is not rejected and it can be concluded that the sector wise NPA growth rate of both bank groups is almost equal. Now the Priority Sector NPA such as Agriculture NPA, SSI NPA and Other Priority Sector NPA have been analysed to see whether there is any significant difference in their composition of in the total NPA of both bank groups. For this purpose again t test has been employed. Table: 15; For Priority Sector NPA Composition Sector Agriculture NPA SSI NPA Other Priority Sector NPA Variance Assumption Equal Variances Assumed Equal Variances Assumed Equal Variances Assumed Levene's Test For Equality of Variance t-test for Equality of Means F Sig. t df sig. (2- tailed) As the significance value of Levene s test statistic of homogeneity of variance is assumed level of significance of 5% thus in all the cases the values of t test have been considered assuming equal variance. Further the significance values in all the cases is much above than the assumed level of significance the null hypothesis is not rejected and it can be concluded there is no significant difference between the sector wise composition of Agriculture NPA, SSI NPA and Other Priority Sector NPA between both banks groups. Table: 16For Priority Sector NPA Growth Sector Agriculture NPA Growth SSI NPA Growth Other Priority Sector NPA Growth Variance Assumption Equal Variances Assumed Equal Variances Assumed Equal Variances Assumed Levene's Test For Equality of Variance t-test for Equality of Means F Sig. t df sig. (2-tailed) Finally, the priority sector NPA growths of both banks group have been analysed to see whether there is any significant difference between the NPA growths Agriculture Sector, SSI Sector and Other Priority Sector between both bank groups. The higher significance values of Levene s test statistic in all the cases suggest going ahead with t test assuming equal variance. Further, the respective p values of t test in all the cases is much above than the assumed level of significance of 5% the null hypothesis is not rejected and it can be concluded that there is no significant difference 40

23 between Agriculture NPA growth, SSI NPA growth and Other Priority Sector NPA growth between both bank groups. Testing of Hypothesis 1. H0: In order to test first null hypothesis that There is no significant impact of Priority Sector NPA, Non Priority Sector NPA and Public Sector NPA on Gross NPA of SBI Group and Nationalised Banks Group (A) For SBI Group: It can be seen from the table 08 that the corresponding p-values of Priority Sector NPA, Non Priority Sector NPA and Other Priority Sector NPA are 0.002, and which are well below the assumed level of significance at which we are testing hypothesis. Thus our null hypothesis is rejected and alternative hypothesis is accepted that there is a significant impact of Priority Sector NPA, Non Priority Sector NPA and Other Priority Sector NPA on Gross NPA of SBI Group. (B) For Nationalised Banks Group: From the Table 12, it can be seen that the corresponding p- values of Priority Sector NPA, Non Priority Sector NPA are respectively and which are well below significance level of 5% however the corresponding p-value for Other Priority Sector is which is much higher than 5% thus our null hypothesis that There is no significant impact of Priority Sector NPA and Non Priority sector NPA on Gross NPA of Nationalised Banks Group stands rejected and we can conclude that there is a significant impact of Priority Sector NPA and Non Priority Sector NPA on Gross NPA of Nationalised banks while the null hypothesis for No significant impact of Other Priority Sector on Gross NPA is not rejected as p > 0.05 thus it can be said that there is no significant impact of Other Priority Sector NPA on Gross NPA of Nationalised banks group. 2. To test our second null hypothesis that There is no significant difference in composition of Priority Sector NPA, Non Priority Sector NPA and Public Sector NPA between SBI Group and Nationalised Banks Group it can be seen from the Table13 that : (A) For Priority Sector NPA: - No significant difference in the composition of Priority Sector NPA of both banks groups was found thus Priority Sector NPA to total NPA of both bank groups are almost similar. (B) For Non Priority Sector NPA:- No significant difference in the composition of Non Priority Sector NPA between both bank groups was found thus the Non Priority Sector NPA composition to total NPA of both bank groups are similar. (C) For Public Sector NPA: - Again no significant difference in the composition of Public Sector NPA in total NPA of both bank groups were found thus Public sector NPA composition of both bank groups are also found similar. 3. To test our third null hypothesis that There is no significant difference in growth of Priority Sector NPA, Non Priority Sector NPA and Public Sector NPA between SBI Group and Nationalised Banks Group from the Table 14 it can be seen that: 41