An Impact Analysis of Non-performing Asset (NPA) of Banks on Profitability of the Banks in India

As of March 2023, the gross non-performing asset ratio for Indian banks dropped to 3.9%, a ten-year low, according to a statement released by the Reserve Bank on Wednesday (The Economic Times in Indian banks gross bad loans fall to a 10-year low of 3.9 per cent: RBI’s financial stability report, 2023). Most significantly, the banks are in the process of extending their hands to support financially to all micro, small and medium industries. Along with their regular financial services, the banks are also extensively support for agricultural finances. The worrying part of the banking service is the non-performing assets or the non-repayment of loans by the borrower. It severely affects the profitability of the bank and it also affects the whole financial sector. Growing rates of nonperforming loans or advances could have a negative effect on banks’ performance by pinching their profits and lowering their profitability. To evaluate the status of non-performing assets of the banks in India and to analyse the impact of non-performing assets of bank on profitability and GDP growth of the economy. The NPA rate was aggressively moved to a higher level of 4.27 per cent to 7.48 per cent in the year 2017 and 9.23 per cent in the year 2018. The highest per cent of the NPA was recorded in the year 2018 while comparing figure with 2011 to 2022. Due to various government initiatives, the NPA has been controlled in the year 2019 onwards till 2022 from 9 per cent to 5.8 per cent. But still the NPA rate was higher than the figure of 2011 NPA of the bank in India. Due to that the profitability of the banks has been declined.