Npa Affecting The Performance Of Public Sector Banks In India: An Empirical Analysis

Abstract

Banks worldwide are facing the problem of rampaging non-performing assets and they are finding difficulty in dealing with it. Popular measures taken by various government in states and at centre compelling the public sectors banks to compromise  with standard norms more often, further complicating the woes of these banks who are already facing competition from private sector banks in India. On the other hand, although this problem is of less intensity in private sector banks, private sectors bank in order to inroads into the exclusive customer base, often compromise with the same standard norms and proportion of their NPA is also increasing day-by-day. Performance of the Commercial Banks greatly depends upon the quantity and quality of their lending activity. The quantity of lending indicates the operational outreach of banks clientele and quality shows the proportion of assets that is recoverable by the banks and that cannot be recovered leading to Non-performing Assets. This research paper tried to find out the probable impact of NPA on the financial performances of Public Sector Banks. Regression analysis was done to ascertain the impact of Gross NPA on three profitability ratios namely Return on Capital Employed (ROCE), Return on Equity (ROE) and Return on Assets (ROA) of eight public sector banks: State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda (BOB), Canara Bank, Indian Bank, Bank of India, Union Bank of India, and Bank of Maharashtra. The data  of Gross NPA of these banks and their profitability ratios from 2019-20 to 2023-24 were analysed using  SPSS software. The output of the regression analysis found negative impact of NPA of profitability parameters but the impact was found to be significant only on ROCE in case of Union Bank of India and Bank of Maharashtra, on ROE in case of State Bank of India and on ROA in case of State Bank of India at 95 percent confidence level. This paper also found that although, the proportion of NPA had been reduces to an extent, yet it was still high enough to undermine their profitability. Therefore, it was found that although the problem of NPA has reduced to an extent, the menace is yet to be addressed and it seems to continue troubling the banks particularly public sector banks in future as well.