An Impact Evaluation of NPA Provisioning on the Net Worth of Public Sector Banks: A Case Study of State Bank of India

Vinod Kumar Adwani, Mahendra Vishwakarma

Vol 10 , Issue 1 , January - June 2023 | Pages: 144-157 | Case Study

Article has been added to the cart.View Cart (0)

https://doi.org/10.17492/jpi.mudra.v10i1.1012308

Published Online: June 03, 2023

Author Details ( * ) denotes Corresponding author

1. * Vinod Kumar Adwani, Assistant Professor, Commerce, The Bhopal School of Social Sciences, Bhopal, Madhya Pradesh, India (vinodadwani16@gmail.com)

2. Mahendra Vishwakarma, Assistant Professor, Management, The Bhopal School of Social Sciences, Bhopal, Madhya Pradesh, India (vishwakarma26sep@gmail.com)

Any default made by the borrowers in the repayment of bank loan is termed as Non-performing Asset (NPA). NPAs adversely affect the asset quality and profitability of the bank. This quantitative research study is an effort to evaluate the impact of these NPAs on the net worth of a bank. The evaluation of the impact is made by taking the case study of State Bank of India (SBI), the largest and oldest bank of the country. To evaluate per share book value of SBI, real and projected NPAs and its provisioning, the financial data for last 12 years are considered. Further, market value ratios are used for the assessment of the quantitative and analytical impact of NPAs on the shareholder’s net worth. Through real and projected Book Value, and regression analysis, it is observed that there is a substantial impact of increasing NPA provision on shareholder’s net worth of SBI.

Keywords

State Bank of India; Book value per share; Non-performing assets; Net worth; NPA provisioning

Agarwala, V. & Agarwala, N. (2019). A critical review of non-performing assets in the Indian banking industry. Rajagiri Management Journal, 13(2), 12-23.
Bamoriya, P. & Jain, R. (2013). NPAs and select key financial heads: An empirical study of commercial banks of India under multiple regression modelling. Journal of Accounting and Management, 3(2), 19-25.
Barge, A. (2012). NPA management in banks: an Indian perspective IBMRD’s. Journal of Management and Research, 1(1), 89-91.
Bhaskaran, R., Bhalla, L., Sarin, V., Kaur, S., Rahman, A., Singh, G., Bhattacharya, A. M., Jha, A. K. & Verma, P. (2016). Non-performing assets of public and private sector banks in India: A comparative study. International Journal of Services and Operations Management, 25(2), 155-172.
Bhatia, S., Kumar, B. & Banga, G. (2007). Menace of non-performing assets (NPAs) in non-banking finance companies (NBFCs). Indian Journal of Accounting, 38, 42-50
Das, S. K. & Uppal, K. (2021). NPAs and profitability in Indian banks: An empirical analysis. Future Business Journal, 7(1), 1-9. Retrieved from https://doi.org/10.1186/s43093-021-00096-3.
Kumari, R., Singh, P. K. & Sharma, V. C. (2017). Impact of NPAs on financial performance of Indian banking sector. IIS University Journal of Commerce & Management, 6(1), 122-13.
Mishra, B. & Rath, S. S. (2020). Comparative study of non-performing assets using non-parametric test: Indian scheduled commercial banks. Arthniti: Journal of Economic Theory and Practice. Retrieved from https://doi.org/10.1177/09767479211027874.
Murari, K. (2014). Comparative evaluation of NPAs of Indian banks: A study of Public and private sector banks- 2014. Asian Journal of Research in Banking and Finance, 4(5), 232-247.
Patidar, S. & Kataria, A. (2012). Analysis of NPAs in priority sector lending: A comparative study between public sector banks and private sector banks of India. Bauddhik, 3(1), 54-69.
Rajeev, M. & Mahesh, H. P. (2010, Banking sector reforms and NPA: A study of Indian commercial banks. Working Paper 252 Institute for social and economic change, 1-19. Retrieved from http://www.isec.ac.in/WP%20252%20-%20Meenakshi%20Rajeev%20 and%20H%20P%20Mahesh.pdf.
Rathore, D. S., Malpani, S. & Sharma, S. (2016). NPAs of Indian banking system and its impact on economy. IOSR Journal of Economics and Finance, 7(6), 21-26.
Sharma, G. (2018). Unmasking the ordeal of growing NPAs in Indian banking sector. International Journal of Business and Management Invention, 7(7), 43-50.
Veena, K. P. & Pathi, S. N. (2018). Pre and post-merger analysis of NPAs: A study with special reference to ICICI Bank Ltd. International Journal of Management Studies, 5(1(2)), 51.