IMPACT OF NPA ON PROFITABILITY OF COMMERCIAL BANK

Abstract

It is very necessary for the expansion of the economy to ensure that the financial sector continues to be strong. Non-performing loans have emerged as one of India's most pressing problems over the course of the last decade, when it comes to the nation's various financial institutions. A higher NPA will lead to lower profitability for banks since it will lead to a fall in interest income and it will also cause capital erosion, both of which will result in the erosion of bank capital. The major purpose of this research is to analyse the effect that "non-performing assets had on 40 scheduled commercial banks (both public sector and private sector banks) throughout the period of time spanning 2005-2018. This time frame includes both public sector and private sector banks. One of the most significant discoveries was that nonperforming assets (NPA) had a significant negative impact on the profitability of scheduled commercial banks as measured by return on assets and return on equity. This was one of the most significant results. In addition to this, a number of other bank-specific variables were also added, and all of these showed that while an increasing wage bill (or even worse, operational efficiency) has a negative impact on Return on equity and Return on assets, nett interest margin and non-interest income both have a positive influence on bank profits. This was proved by the inclusion of a number of additional traits that are exclusive to banks".