Non Performing Asset’s Impact on the Profitability of the Public Sector Banks in India

Abstract

One of the serious problems faced by the Indian Banking Sector over the last ten years is the mounting Non Performing Assets. The financial health of the banking system as well as the socio-economic development of our country is affected by the Non Performing Assets.   The biggest contributor to the large and rising stock of NPAs are the Public Sector Banks.  The profitability is affected by the high probability of credit defaults. There is a decline in the Return on Assets (ROA) due to rising NPAs. The problem of NPA is not limited only to Indian Public sector Banks but it prevails in the entire banking Industry.  The banks ability to meet higher capital requirements are also affected by the High amount of NPAs.The amount of NPAs cannot be reduced unless some stringent policies are followed by the Banks as well as the Government. This paper discusses the concepts of NPA, the reasons and the impact of NPA on the Profitability of the Public Sector Banks. R programming is used to find the correlation between the Gross NPAs and the Profitability of the Public Sector Banks.