ANALYSIS OF THE EFFECT OF THE NON-PERFORMING ASSETS ON THE PROFITABILITY OF THE PUBLIC SECTOR BANKS

Abstract

After the first phase of economic liberalisation, the Indian banking industry underwent a significant change, and the role of credit management became widely recognised. The banks have become more cautious and careful when lending money to borrowers because of the rising number of non-performing assets. This study makes an effort to comprehend the reasons for an asset to become a non-performing asset (NPA) and various corrective steps that can be taken to reduce the amount of NPA in banks. The purpose of this study is to analyse the effect of nonperforming assets (NPAs) on the profitability of public sector banks (PSUs). Non-performing assets (NPAs) are the most pressing issue that the banks face today, and they are not only a liability for the banks but a challenge for the entire financial system. Rising non-performing assets (NPAs) have an impact on operating performance, which eventually has an impact on the bank’s profitability, liquidity and solvency. The rising number of non-performing assets (NPAs) puts a strain on fund recycling and limits banks' ability to lend further, resulting in lower interest income. NPAs must be reduced and regulated in order for banks to improve their performance and profitability. This study attempts to determine the relationship between NPAs and bank’s profitability, taking into account major public sector banks that are dealing with the mounting NPAs.With the aid of the RBI, banks are now taking proactive steps to manage non-performing assets. To boost bank profitability, the level of NPA must fall, and banks must take various steps to achieve this.