“To study the impact of Non-Performing Assets
Profitability of Jammu And Kashmir Bank”
A SUMMER INTERNSHIP REPORT
Danish Mehraj Peerzada
Registration No: 11601025
In partial fulfillment of Summer Internship for the award of the degree of
MASTER OF BUSINESS ADMINISTRATION
Mittal School of Business
LOVELY PROFESSIONAL UNIVERSITY
I declare that the project entitled ―To study the impact of NPA on the
profitability of Jammu And Kashmir Bank Ltd‖ is the record of independent
work carried out by me under the supervision and guidance of Mr. Farooq
Ahmed Bhat Branch head in J&K Bank. This has not been submitted for any
award of Degree, diploma or any other similar title.
Danish Mehraj Peerzada
Registration no: 11601025
Certified that the summer internship project report “To study the impact of Non-
Performing Assets on the profitability of J&K Bank Ltd” is the bonafide work of
Danish Mehraj Peerzada, Regd. No: 11601025, student of Master of Business
Administration of Mittal School of Business, Lovely Professional University carried out
under my supervision during June 01, 2017 to July 17, 2017.
Signature of the University supervisor
Date : August 02, 2017
Name of Supervisor : Dr. GNPV Babu
Designation : Assistant Professor
I owe a great many thanks to great many people who helped and supported me during the
preparation of this project report. My deepest thanks to (Mr. Farooq Ahmed Bhat Branch
Head in J&K Bank) the guide of the project for guiding correcting various documents of
mine with attention and care. He has taken pain to go through the project and make
necessary corrections as and when needed. I express grateful thanks to Mr. GNPV Babu
Professor Mittal School Of Business, Lovely Professional University Phagwara
Jalandhar, for extending his support for completing the project report. Thanks and
appreciation to all those people who helped me and provided the proper guidance during
the project work. I would also thank my institution and my faculty members without
whom this project would have been a distant reality. I also extend my heartfelt thanks to
my family, friends and well-wishers.
Certificate of completion………………………………………………………………..03
Contents ………………………………………………………………………………... 05
Reasons of NPA………………………………………………………………………… 10
Bankruptcy Law in India……………………………………………………………. ….11
Financial Crises the Indian story……………………………………………………........12
Industry Profile …………………………………………………………..………….. …13
Achievements and Recognitions……………………………………………………........14
Literature Review ………………………………………………………………........15-17
Problem Statement ………………………………………………………………............18
Objectives and Research Methodology ………………………………………................19
Data analysis and interpretation ……………………………………………………..20-22
Management of Non-Performing assets……………………………………………….....23
Findings, suggestions and conclusion………………………………………………........24
References ……………………………………………………………………….. …25-26
Non-performing Asset is an important parameter in the analysis of financial performance of a bank as it
results in decreasing margin and higher provisioning requirements for doubtful debts. NPA is a virus
affecting banking sector. It affects liquidity and profitability, in addition posing threat on quality of asset
and survival of banks. The motive of present study is to assess the non – performing assets of Jammu
And Kashmir Bank Ltd and its impact on profitability & to see the relation between total advances, Net
Profits, GROSS & NET NPA. The study uses the annual reports of Jammu And Kashmir Bank Ltd for
the period of eight years from 2009-2010 to 2016-17. The data has been analyzed by using tables and
coefficient of correlation. The important point to be noted is that the decline of NPA is essential to
improve profitability of banks. Advances provided by banks need to be done pre-sanctioning evaluation
and post-disbursement control to constrain rising non-performing assets in the Indian Banking sector.
When JK Bank Gross & NET NPA compared with total advances we get the result that there is
mismanagement on the side of J&K Bank. While analyzing the impact of NPA level on J&K Bank, We
derived the conclusion that there is a negative relation between Net Profits and NPA of J&K Bank. It
simply means that as profits increase NPA also increase. It is because of the mismanagement on the side
The banking industry has undergone a sea change after the first phase of economic liberalization in 1991
and hence credit management came into picture. The primary function of banks is to lend funds as loans
to various sectors such as agriculture, industry, personal and housing etc. and to receive deposits.
Receiving deposit involves no risk, since it is the banker who owes a duty to repay the deposit,
whenever it is demanded. On the other hand lending always involves much risk because there is no
certainty of repayment. In recent times the banks have become very cautious in extending loans, the
reason being mounting nonperforming assets. Non-performing assets had been the single largest cause
of irritation of the banking sector of India. The role of commercial bank in the progress of the country is
considered as a benchmark. For the high rate of capital formation the role of commercial bank has no
any other alternative. For every economy financial sector plays a vital role for the development and
growth of the country. And in order to have this economic growth Non Performing Assets play a vital
role in terms of banking sector. And now a days RBI has issued strict guidelines to reduce the level of
NPA in the banks and due to that the proportion of NPA, s has reduced up to the extent but not all
together. Recently Government cleared an ordinance to amend the banking regulation Act, giving wide
ranging legislative powers to RBI to issue directions to lenders to initiate insolvency proceedings for the
recovery of bad loans. RBI has decided to focus on large stressed accounts under the framework and
accordingly a set of accounts has been identified. The higher is the amount of non-performing assets
(NPAs), the weaker will be the bank‘s revenue stream. In the short-term, many banks have the ability to
handle an increase in nonperforming assets — they might have strong reserves or other capital that can
be used to offset the losses. But after a while, if that capital is used up, nonperforming loans will imperil
a bank‘s health. Think of nonperforming assets as dead weight on the balance sheet. The rising
incidence of NPAs has been generally attributed to the domestic economic slowdown. It is believed that
with economic growth slowing down and rate of interest going up sharply, corporates have been finding
it difficult to repay loans, and it has added up to rising NPAs.
Performing asset is an asset that provides a dependable annual financial return; for example, production
machinery or, in transportation, an airliner. In banks the performing asset is the account which does not
disclose any problems and carry more than normal risk attached to the Business.
Standard asset for a bank is an asset that is not classified as an NPA. The asset exhibits no problem in
the normal course other than the usual business risk. If the borrower regularly pays his dues regularly
and on time; bank will call such loan as its ―Standard Asset‖. As per the norms, banks have to make a
general provision of 0.40% for all loans and advances except that given towards agriculture and small
and medium enterprise (SME) sector.
A nonperforming asset (NPA) refers to a classification for loans on the books of financial
institutions that are in default or are in arrears on scheduled payments of principal or interest. In most
cases, debt is classified as nonperforming when loan payments have not been made for a period of 90
days. While 90 days of nonpayment is the standard period of time for debt to be categorized as
nonperforming, the amount of elapsed time may be shorter or longer depending on the terms and
conditions set forth in each loan. Banks usually categorize loans as nonperforming after 90 days of
nonpayment of interest or principal, which can occur during the term of the loan or for failure to pay
principal due at maturity non-performing to meet regulatory requirements. A loan can also be
categorized as nonperforming if a company makes all interest payments but cannot repay the principal at
Sub-standard asset is an asset class drawn within the broader and much-known non-performance asset
category of banks on the basis of term for which the asset class has not performed and extent of dues
realization from collateral security with banks. In general, NPAs are the assets that have ceased to
generate income for the banks.
Doubtful Assets: A doubtful asset is one which has remained NPA for a period exceeding 12
months. A loan classified as doubtful has all the weaknesses inherent in assets that were classified as
substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on
the basis of currently known facts, conditions and values highly questionable and improbable.
Loss Assets: where loss has been identified by the bank, internal or external auditor or central bank
inspectors. But the amount has not been written off, wholly or partly.
REASONS OF NPA
Some of the reasons for emergence of the NPA typical to Indian Banks include-faulty institutional
environment reflected in its economic, political, legal and social environment. Other reasons include use
of bank as an instrument of public policy, incompatibility of banks interest with certain policy
instruments as well as change in the economic system.
Defaulter Friendly Legal System: The legal system of our does not favor early recovery of dues.
According to the report, the Indian Legal system is supposed to be sympathetic towards borrowers to the
extent of working against banks interest, specifically their tendency to write off small advances if their
recovery was not possible. Accordingly, banks also believe that writing off such loans would help them
clean up the Balance-sheet and bring about greater transparency.
Intentional Misuse of Settlement Policy of RBI: A policy of settlement of loans with the borrowers
initiated by the RBI involves an element of concession granted to the defaulters. This resulted in even
the smaller and less influential borrowers refusing to pay off their loan and the tendency to misuse the
settlement policy of RBI has increased over the years.
Absence of Structured Monitoring Mechanisms: Ineffective, inadequate and incompetent
supervision owing to shortage of qualified manpower as well as absence of structured monitoring
mechanisms. Subsequently the concept of centralized as well as specialized loan advancing hub came
into being leading to marginal improvement.
Lack of Entrepreneurship: Lack of entrepreneurship and knowledge on the part of the borrowers
about proper use of funds coupled with absence of proper guidance by the lending institution.
Improper Discharge of Responsibilities: Occasional connivance between the borrower and loan
granting authority further supplemented by improper discharge of responsibilities by lawyer in respect
of security of title of properties , values in respect of proper valuation of the mortgaged assets and even
auditors by being very casual and mechanical in their approach.
BANKRUPTCY LAW IN INDIA
The Insolvency and Bankruptcy Code, 2016 (IBC) is the bankruptcy law of India which seeks to
consolidate the existing framework by creating a single law for insolvency and bankruptcy. The
Insolvency and Bankruptcy Code, 2015 was introduced in Lok Sabah in December 2015. It was passed
by Lok Sabah on 5 May 2016.
The Code received the assent of the President of India on 28 May 2016.
Certain provisions of the Act have come into force from 5 August and 19 August 2016.
Insolvency Resolution: The Code outlines separate insolvency resolution processes for individuals,
companies and partnership firms. The process may be initiated by either the debtor or the creditors. A
maximum time limit, for completion of the insolvency resolution process, has been set for corporates
and individuals. For companies, the process will have to be completed in 180 days, which may be
extended by 90 days, if a majority of the creditors agree. For startups (other than partnership firms),
small companies and other companies (with asset less than Rs. 1 Crore), resolution process would be
completed within 90 days of initiation of request which may be extended by 45 days.
Insolvency regulator: The Code establishes the Insolvency and Bankruptcy Board of India, to oversee
the insolvency proceedings in the country and regulate the entities registered under it. The Board will
have 10 members, including representatives from the Ministries of Finance and Law, and the Reserve
Bank of India.
Insolvency professionals: The insolvency process will be managed by licensed professionals. These
professionals will also control the assets of the debtor during the insolvency process.
Bankruptcy and Insolvency Adjudicator: The Code proposes two separate tribunals to oversee the
process of insolvency resolution, for individuals and companies: (i) the National Company Law Tribunal
for Companies and Limited Liability Partnership firms; and (ii) the Debt Recovery Tribunal for
individuals and partnerships.
THE FINANCIAL CRISIS
The 2008 financial crisis was a turning point in the history of the financial world for many reasons, the
most important being the heightened awareness and concerns around asset quality. Every step of the
lending process, from customer verification, profile risk assessment to collateral valuation came under
the scanner. The analysis concluded that there exists a trade-off between asset growth and quality, and in
the quest for growth, quality had been compromised.
THE INDIA STORY
Indian Banks today are in a phase of rapid growth, with a credit to deposit ratio of 75%1 and an average
annual credit growth of 15%2. Banks are faced with the challenging task of maintaining/increasing
credit off-take to fuel GDP growth, while also ensuring quality is not compromised. An obvious
outcome of low asset quality is the growth in Non-Performing Assets (NPAs). NPA growth needs to be
supported with a higher level of provisioning, which in turn has a direct impact on bottom-line. Banks
see a definite drop in retained earnings and are forced to raise more tier 1 capital to sustain the same
level of credit disbursements. Intuitively, this points to an inefficient utilization of resources with ratios
like profit margin and ROE being directly impacted. Concerns around asset quality have been a focus
area for the Indian regulator as well. The Reserve Bank of India (RBI) has talked about ―systems to
track and classify NPAs‖ way back in 2008. The RBI Master circular dated September 2012 details out
the prudential norms on Income Recognition & Asset Classification (IRAC) and emphasizes on the need
for an effective mechanism and granular level data monitoring for NPA. The finance ministry also
echoed this sentiment when it directed all Public Sector Unit Banks (PSU) to automate calculation and
monitoring of NPAs by September 2011, and later extended the deadline to March 2012. The basic
objective is to increase transparency and consistency in financial reporting while creating an effective
mechanism to monitor NPAs. In early 2013, Moody‘s had downgraded the rating of the Indian
Sovereign and Banking industry from ―Stable‖ to ―Negative‖. Key reasons for this were the rising NPA
levels and quantum of restructured loans both of which were considered, symptoms of deteriorating
asset quality. Some other studies, also predicted that NPA levels for Banks were expected to reach 4%
by March 2013 and 4.4% by March 2014. Overall, the current NPA status was grim and checks and
balances to monitor asset quality and NPAs in particular were the need of the hour.
THE JAMMU AND KASHMIR BANK LTD
The Jammu and Kashmir Bank was founded on 1 - October - 1938 under letters patent issued by
the Maharaja of Jammu and Kashmir, Hari Singh. The Raja had invited the eminent investors to become
the founding directors and shareholders of the bank. The most notable of which were Pandit Sriniwas,
Magotra, Abdul Aziz Mantoo, Pesten jee and the Bhaghat Family. All of whom acquired major
shareholdings. The bank commenced the banking business on 4 July 1939 and was considered the first
of its nature and composition as a State owned bank in the country. The bank was established as a semi-
State Bank with participation in capital by State and the public under the control of State Government.
In year 1971, the bank had acquired the status of a scheduled bank and was declared as an "A" Class
bank by the Reserve Bank of India in 1976.The bank had to face serious problems at the time of
independence when out of its total of ten branches two branches of Muzaffarabad,
Rawalkot and Mirpur fell to the other side of the line of control (now Pakistan-administered Kashmir)
along with cash and other assets. Following the extension of Central laws to the state of Jammu &
Kashmir, the bank was defined as a government company as per the provisions of Indian companies act
1956. Dr Haseeb Drabu was chairman and CEO of the bank for the period 2005 to 2010. Pervez
Ahmad is the new Chairman & Chief Executive Officer of Jammu & Kashmir Bank. On 15 May 2013,
bank announced that it has achieved the target of promised Rs 10 billion profit for the FY 2012–13. The
bank posted net profit of Rs 10551 million and business turnover of Rs 1034 billion for the FY 2012–13.
JK Bank‘s vision is to engender and catalyze economic transformation of Jammu and Kashmir and
capitalize from the growth induced financial prosperity thus engineered. The Bank aspires to make
Jammu and Kashmir the most prosperous state in the country, by helping create a new financial
architecture for the J&K economy, at the center of which will be the J&K Bank.
To provide the people of J&K international quality financial service and solutions and to be a super-
specialist bank in the rest of the country. The two together will make us the most profitable Bank in the
ACHIEVEMENTS AND RECOGNITIONS OF J&K BANK LTD
The Jammu & Kashmir Bank has been ranked ‗one of the best banks‘ in the financial magazine
Business Today and global consulting firm KPMG (BT– KPMG) Best Bank study-2011.
In April 2016 J&K Bank awarded for its performance in the enrollment subscription of central
Government‘s flagship insurance scheme Atal Pension yojna (APY). In terms of targets achieved
under APY, the bank was adjudged second among the country‘s private sector Bank.
In June 2017 Bank bags the award at Rural Self Employment Training Institute Diwas in Delhi
for good performance during the ‗4th RSETI Diwas‘ at Vigyan Bhawan, New Delhi wherein
RSETIs across the country participated.
J&K Bank has already started a project in a mission mode to promote young talent in various
fields who have achieved national as well as international recognition in their field of profession.
Wall Calendar 2017 is a step in line with their said mission.
After the loss of 1632.28 Cr in the last financial year the bank has reported financials for the
quarter and financial year ended March 2017 by posting an operating profit of Rs. 276.37 Cr for
the quarter and Rs 1294.34 Cr for the financial year.
In May 2016 J&K Bank has been Awarded with four state level micro financing awards 2015-
2016 for its performances under promotion and financing of Self Help Groups (SHG‘s) and Joint
Liability Groups (JLG‘s) in the Jammu And Kashmir State.
In 2014 J&K Bank has ranked fifth among the top 10 rated sensitive stocks which can deliver up
to 26 per cent return in near term that appeared in a prominent national Business Daily.
India Ratings and Research (Indi-Ra) has affirmed Jammu and Kashmir Bank Ltd.‘s (JK Bank)
Long-Term Issuer Rating and INR 6bn lower Tier II notes at 'IND AA' with a Stable Outlook
Singla & Narula (2014), in his research article titled ―Empirical Study on Non-Performing Assets of
Bank‖ they have found the positive correlation between NPA and Net profits of PNB. Which means as
the profit was increasing NPA was also increasing. They stated about the mismanagement of PNB for
identifying the potential clients. Who can make the installments on timely basis but loans were given to
such customers who did not pay back the debts of the company on timely basis. It also suggests that if
there would be the proper management of bank then the possibility is decrease of NPA and increase of
Net profits. And the correlation between NPA and net profits will be negative.
Singh (2016) In his research paper titled, ―A Study of Non-Performing Assets of Commercial Banks and
it‘s recovery in India. NPA have huge impact on the performance of banks in India which clarifies that
it is not only problem for the banks but a constraint for economic growth too. The money lagging
behind due to NPA‘s has huge impact on the profitability of banks. Because Indian Banks are totally
dependent on Interest on loans or funds they lent. In his research Article it is also found that the level of
NPA in Indian banks is considerably high as compared to the foreign banks. In this research paper it is
found that the studies have lot of time gap which is already done. This does not reflect the current
position of NPA‘s in present scenario. This research paper has provided various suggestions for the
recovery of bad debts to banks, which can lead the banks to recover the NPA‘s through various
Selvarajan & Vadivalagan (2013)., in their research paper titled ―A Study on Management of Non-
Performing Assets in Priority Sector reference to Indian Bank and Public Sector Banks ―, they have
analyzed the priority sector in three major heads i.e., agriculture ,small scale industries and other
priority sector. They have also studied weaker sections also which are part of the priority sector. By
collecting the data of priority sector advances of 10 years from Indian bank and from public sector
banks. They have did the comparison of priority sector lending activities with public sector banks.
They found that the growth of Indian bank‘s lending to priority sector is more than priority sector.
Furthermore they have analyzed the data and it was found that Indian bank is lagging behind in
management of NPA‘S as whole.
Guleria et.al(2016)., in his paper titled,‖ A Study of Non-Performing Assets of Public Sector Banks
in India‖ , author has analyzed the data and found that the level of NPA is higher as compared to
other nations. They have determined various issues that constraint‘s public sector banks to improve
the level of NPA. They suggested that banks should analyze the credit worthiness of customers
before lending loans and advances.
Sikdar & Makkad ( 2013)., in their research paper titled,‖ Role of non-performing assets in the risk
framework of commercial banks – a study of select Indian commercial banks ― they have found that
NPA‘s can be tracked with proper credit assessment and risk management mechanism. They also
stated that when there is a situation of liquidity overhang, the mechanism of banking system to
increase lending may compromise on asset quality, raising concern about their adverse selection and
some danger of addition stock of NPA‘S. They suggested that it is better for banks to address the
NPA‘s at earlier stages of credit consideration but putting appropriate credit appraisal mechanisms
Shalini.(2013).,in her research paper titled,‖ A study on causes and remedies for non-performing
assets in Indian public sector banks with special reference to agricultural development branch, state
bank of Mysore ―, accounts that bankers need to check the credit worthiness of borrowers by
adopting certain measures. Like ROI of a proposed project. Banks also need monitor the borrower in
order to check and ensure that the funds lent by the bank have been utilized properly or not. The
banks also have to check the reputation of the customer before lending the loan. Researcher further
suggests that banks need to provide proper knowledge to customers like farmers if found defaulters.
These findings have been found and it is assumed by the researcher that Banks can reduce the Level
Siraj (2013).,in her article,‖ Non-performing assets in Indian banking sector‖, The researcher has
analyzed three major aspects of NPA variables and the relationship between NPA and advances of
banks in respect to performance indicators. He analyzes the impact of 2007 financial crisis and
recession on performance of NPA‘s of public sector banks. The researcher also found that
addressing the performance indicators like various economic variables helps the banks to balance
the relationship between Net advances and NPA.
Pasha & Srivenkataramana (2014)., in their research paper titled ―,‖ Non-Performing Assets of
Indian Commercial Banks: A Critical Evaluation‖ researcher has concluded that for the efficient
management of NPA banks need to access the causal factors. This can help to reduce the risk of
NPA. Banks need to have up to date information and there should be a proper credit evaluation
system which can help to identify the dynamic market conditions.
K.K (2014), in his research paper titled ―A Study on the Composition of Non-Performing Assets (NPAs)
of Scheduled Commercial Banks in India‖ it is found that the NPA can be reduced to a greater extent by
improving the quality of credit appraisal and follow up. Indian bankers should efficiently analyze
existing credit appraisals framework in context with international standards.
Yadav (2001) in his paper titled‖ Impact of non-performing assets on profitability and productivity of public
sector banks in India‖ he has discussed about the declining trends. One fourth amount of total advances of
public sector banks was in the form of doubtful or non-performing assets in the initial year of nineties,
which raising question mark on the credit appraisal performance of the public sector banks in India.
Gandhi (2015) in his paper titled, ―Non-Performing Assets: A study of State Bank of India‖ concluded
that NPA‘s for SBI bank has been increasing since 2010 which is very bad for the banks. So, banks
should take strict actions to avoid it and proper recovery system should be implemented by banks.
Devi (2015) in her paper titled, ―Non-Performing Assets: A study of Punjab National Bank‖ concluded
that total advances and NPA of bank is increasing every year. The main reason for increase in NPA is
mismanagement by bank and the maximum number of NPA is due to the loans given to the agricultural
Babu K N & Mayya (2016) in their paper titled, ―Management of NPA in Selected Co-Operative Banks
with Special Reference to D.K. District, Karnataka, India‖ concluded that there is direct link between
NPA and profitability of the banks. If the bank is able reduce the NPA so the profitability of the banks
can be increased.
Finance Minister Arun Jaitley in the month March 15, 2017, stated that Non-performing assets are
showing a declining trend in the last few quarters of FY17, yet it continues to be one of the major
problems in India. Gross NPAs 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. Between early 2000's and 2008 Indian
economy was in the boom phase. During this period Banks especially Public sector banks lent
extensively to corporate. However, the profits of most of the corporate dwindled due to slowdown in the
global economy, the ban in mining projects, and delay in environmental related permits affecting power,
iron and steel sector, volatility in prices of raw material and the shortage in availability of. This has
affected their ability to pay back loans and is the most important reason behind increase in NPA of
public sector banks.
Five sectors Textile, aviation, mining, Infrastructure contributes to most of the NPA, since most of the
loan given in these sectors are by PSB, They account for most of the NPA. 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, when kingfisher was marred in financial crisis, SBI provided it huge amount of loan
which it is not able to recover from it. There is a myth that main reason for rise in NPA in Public sector
banks was Priority sector lending, However according to the findings of Standing Committee on
Finance NPAs in the corporate sector are far higher than those in the priority or agriculture sector.
However, even the PSL sector has contributed substantially to the NPAs. 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.
OBJECTIVES OF THE STUDY
To compare the Total Advances, Net Profit, Gross NPA & Net NPA of J&K 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 J&K Bank.
Methodology is the systematic, theoretical analysis of the methods applied to a field of study, or the
theoretical analysis of the body of methods and principles associated with a branch of knowledge My
research methodology requires gathering relevant data from the annual reports of J&K Bank and
compiling data in order to critically analyze the Total Advances, Net Profit, Gross NPA, Net NPA of
J&K Bank and arrive at a more complete understanding about performance of J&K Bank .The study
uses the annual reports of J&K Bank for the period of Eight years from 2009-10 to 2016-17. The data
has been analyzed by using tables and coefficient of correlation. Table is used to compare total
advances, gross NPA, net NPA & profits of J&K Bank.
Sample Size: Though Non-performing assets bind to all types of bank but for this research we select
J&K Bank and random sampling technique is used for data analysis.
Sources and Collection data: This study is based on the basis of secondary data. Data and information
collected from annual report of J&K BANK. The present study has been covered a period of Eight
financial years from 2009-10 to 2016-17
Tools and Techniques: The data has been analyzed by using tables, coefficient of correlation
Limitations: The basis for identification of non-performing assets is taken from the Reserve Bank of
India publications. NPAs are changing with the time. The study is done in the present environment
without foreseeing future developments. This study is only restricted to Jammu And Kashmir Bank Ltd.
The result of the study may not be applicable to any other banks. Since the part of the study is based on
their perceptions, the findings may change over the years in keeping with the changes in environment
J&K BANK TOTAL ADVANCES COMPARED WITH NET PROFIT, GROSS
NPA & NET NPA.
Year Total Advances Net profit 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
Table 1: J&K Bank total advances compared with net profit, gross NPA & net NPA.
Source: Annual Report of Jk Bank
INTERPRETATION OF RESULT:
The table is comparing Total advances with NET Profit, Gross NPA & Net NPA of J&K Bank. With the
help of this table we can get knowledge about shaking performance of J&K Bank. We can see that on
one side total advances given by J&K Bank and Net Profits are increasing continuously since 2011.
Which shows that bank is performing very well. But Gross NPA & Net NPA is also increasing which
shows performance is declining due to mismanagement of bank.
The Gross Profit for 2009-10 stood at Rs. 958.21 Crores as compared to Rs. 774.45 Crores in 2008-09,
registering an increase of Rs.183.75 Crores. The Bank registered highest ever Net Profit of Rs. 512.38
Crores for 2009-10 compared to Rs. 409.84 Crores in 2008-09, recording a growth of over 25 percent.
The Gross Profit for the financial year 2010-11 stood at 1,149.49 Crores, compared to 958.21 Crores in
the financial year 2009-10, an increase of 191.28 Crores. The Bank registered highest ever Net Profit of
803.25 Crores for the FY 2011-12 compared to 615.20 Crores for the FY 2010-11 registering an
impressive growth of 30.57%. The Bank‘s performance in the recovery of NPA‘s during the year
continued to be good. The Bank affected cumulative cash recovery up-gradation of NPA‘s and technical
write-off of 316.91 Crores compared to 232.63 Crores in the previous year. After the financial year 2014
the performance of bank for reducing level of NPA is not good. As the bank has continuously increasing
the total advances in all the sectors level of net NPA is also increasing.
RELATIONSHIP BETWEEN NET NPA & NET PROFITS OF J&K BANK
Correlation: Correlation is a numerical measure used to determine the degree of relationship between
Reason of Using the Technique: By using the correlation we want to determine whether there is any
relation between Net Profits and Net NPA of J&K Bank ltd or not.
INTERPRETATION OF RESULTS: .r = -0.71 which means there is negative correlation between net
NPA and net profits of J&K Bank. Negative correlation is a relationship between two variables in which
one variable increases as the other decreases, and vice versa. In statistics, a perfect negative
correlation is represented by the value -1.00, while a 0.00 indicates no correlation and a +1.00 indicates
a perfect positive correlation. The negative correlation between net Npa and net profits of J&K bank is
showing that when net profits are increasing Net NPA is also increasing. Good customers‘ leads to
increase in profits by paying interest and installments on total advances timely and Bad customers leads
to increase in NPA by not paying interest and installment on total advances timely. This is because of
mismanagement and wrong choice of client. The bank is doing well because from one side the net
profits of the bank are increasing but from other side Net NPA is also increasing. From 2010-2014 the
Bank has reduced the level of NPA by huge percentage. The bank further needs to analysis the profile
and credit worthiness of the clients before lending the loans. This will help them to reduce the level of
Non-Performing assets and increase the profitability of the company.
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
RELATIONSHIP BETWEEN TOTAL ADVANCES AND NET NPA OF J&K
r = 0.695542986
INTERPRETATION OF THE RESULT:
The relationship between total advances is showing positive and it can be said that there is a positive
correlation between total advances and net NPA of J&K Bank Ltd. Which interprets that the bank have
increased the total advances from 2010-2017 continuously without taking the proper measures while
lending loans. This results in the huge amount of Non- Performing assets of J&K Bank Ltd. It is
important for the advance manager to know the profile and background of the borrower before lending
the loans. This will help the manager to measure the credit worthiness of the customer before providing
the loan facility. If we see that during 2010 the total NPA of J&K Bank is amounting to 64.33 crores and
after that it is increasing continuously and reaching the amount of 6149.81 crores. In the financial year
2016-2017 the bank shows the net loss of 1632.29 crores and that the level of NPA is increased by 11%.
By finding the results it can be said that the profitability of the bank is affected by holding huge
percentage of Non-Performing assets, which need to be reduced by taking the necessary steps to avoid
risk of loss in Business.
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
MANAGEMENT OF NON-PERFORMING ASSETS IN BANK
A mounting level of NPA‘s in the banking sector can severely affect the economy in many ways. If
NPA‘s are not properly managed, it can cause financial and economic degradation which in turn signals
and adverse investment climate. Nonperforming Asset is an important constraint in the study of financial
performance of a bank as it results in declining margin and higher provisioning requirement for doubtful
debts. Various banks from different categories together provide advances to different sectors like SSI,
agricultural, priority sector, public sector & others. These advances need to be done pre-sanctioning
evaluation and post-disbursement control to contain rising non-performing assets in the Indian Banking
sector. The decline of NPA is essential to improve profitability of banks and fulfill with the capital
adequacy norms as per the Basel Accord.
The Bank has a Credit Risk Management Policy and Collateral Management Policy in place which
stipulates the eligible credit risk mitigates and management thereof. The Bank has adopted the
comprehensive approach, which allows fuller offset of collateral against exposures, by effectively
reducing the exposure amount by the value ascribed to the collateral. Under this approach, the Bank
takes eligible financial collateral (e.g., cash or securities) on an account-by-account basis to reduce the
credit exposure to counterparty while calculating the capital requirements. The Bank also has a well-
defined NPA management policy for establishing credit reserves. Management of NPA is need of the
hour. To be effective, NPA management has to be an exercise pervading the entire bank from the Board
down the last level. Time is of prime essence in NPA management. The course open to the banker is to
ensure that an asset does not become NPA. If it does, he should take steps for early recovery failing
which the profitability of the bank will be eroded. That can trigger other problems to undermine the
bank‘s financial condition. Analysts and experts today consider NPAs to be one of the key indicators
determining the health of the balance sheet along with other measures like CASA ratio and NIM. The
regulatory guidelines, on the topic, classify assets into 4 broad categories – standard, substandard,
doubtful and loss assets with progressively increasing provisioning levels. There are also specific norms
governing collateral apportionment, treatment of restructured assets and complex credit facilities like
Gross NPA & Net NPA of J&K Bank is increasing every year.
Total advances given by J&K and Net Profits are increasing continuously since 2011.
Because of the increase in total advances of bank 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 J&K Bank Ltd.
There is an adverse effect on the Liquidity of Bank.
If the NPA‘s of J&K bank will continuously increase according to this rate then in future bank
will not be able to provide loans to the customers.
Bank management 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.
The problems of 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 J&K 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.
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