2.1 CURRENT TREND OF NON PERFORMING ASSETS IN INDIA

In the event of the continuous emergency, the NPA issue began accepting genuine extents generally from 2013 ahead yet the NPAs had been developing from 2010. To some degree the rebuilding plans presented by the RBI helped the banks to stifle the degree of their asset report worry in the consequence of the 2008 Global Financial Crisis. In April 2015, RBI presented the Asset Quality Review (AQR), which constrained the banks to perceive the focused on resources on their books and arrangement for them. This was material to private and PSU banks alike. The AQR brought about a sharp decrease in the offer costs of a few banks. By September 2015, 9 out of 10 focused on banks were government possessed. Productivity of the managing an account part when all is said in done has been declining since 2012.

In 2015, the offer of gross NPAs in advances of the general managing an account division remained at 7.5%. Despite the fact that in rate terms this was littler than in the past scene, without a doubt the extent of the issue was greater given that the managing an account framework has developed fundamentally in measure since the mid 2000s.

The persistent disintegration of bank money to arrangement for NPAs has made it progressively troublesome for the banks to make new advances. Accordingly corporate credit has been stagnating in the course of recent years. Year on year development rate of bank credit has declined forcefully from 13.8% out of 2014 to 5.8% out of 2015.

(in millions)

source: reserve bank of India

2.2 DEPENDANCE OF NPA ON GROSS ADVANCES, TIME PERIOD AND GDP

1.GROSS DOMESTIC PRODUCT

A nation’s GDP is the aggregate market estimation of every last great and administrations created in a nation in a given year which is equivalent to the aggregate shopper, venture and government spending. Gross domestic product is a development pointer of an economy. As GDP develops, credits and advances additionally develop and consequently it specifically impacts NPAs. In addition, when the economy is in shambles, corporate won’t have the capacity to pay the obligations which will along these lines prompt an expansion in NPA’s.

2. GROSS ADVANCES

Loans and advances are viewed as the most vital factor while gauging NPAs. As the span of credits and advances builds, the extent of NPA’s expansion because of increment in chance all things considered.

In Multiple Linear Regression we have used a combination of independent variables (GDP, Loans and Advances,time period) for finding out their relationship with the NPAs. It can be used to predict the NPA of scheduled commercial banks in India on the basis of the independent variables. The MLR model is:

Yi =?0 +?1X1i +?2X2i +?3X3i+?i

where,

Yi = Gross NPA for the quarter “i” (dependent/response variable),

Xki = independent/explanatory variable taken for regression such as GDP,

?0 = Y intercept,

?k = slope of Y with respect to Xki, holding other variables X1i , X2i , X3i ,? constant,

?i = random error in Y for observation “i”.

MLR model were developed using combination of all variables.

(in million)

source: reserve bank of india, world bank.

MLR model were developed using combination of all variables and following results were obtained:

The regression equation obtained is:

Y=-3005901.849+38886.63X1+0.861881086X2+0.07118637X3

where,

X1-Time period

X2- GDP

X3-Gross Advances

2.3 USING THE MODEL TO FORECAST NPA

According to the above model of multiple linear regression we will the equation:

Y=-3005901.849+38886.63X1+0.861881086X2+0.07118637X3

P-Values of the independent variables

From the data given of past 11 years we can make certain assumptions about the independent variables:

Loans and advances grow at a rate of 10% therefore Advances in 2022= 136518186.5

and GDP predicted by world bank in 2022= USD 3923760

Therefore, NPA in 2022 is forecasted to be = 10716332.86

2.4 FINDINGS

The current trend of NPA in India is increasing due to which the credit growth has declined and this is assumed to be continued in future. Due to less credit growth GDP of a country suffers due to bad investment and hampers future investment as well as loans cannot be generated.

Dependence of NPA over the Gross Advances, Time period and GDP of the country.NPA is effected by all these factor and to derive this relationship multiple linear regression model has been used to find the linear dependency of GDP, time and advances on the non performing assets. After regression multiple R is 0.87 which implies high linear relationship between the variables.

The multiple regression model is used to forecast the value of non performing assets in 2022. For this the growth of advances is taken through the growth rate derived from the last decade which is 10% and the GDP is taken through world bank prediction. Due to this we can derive the predicted NPA in 2022 i.e 10716332.86