Unraveling the Conundrum: Exploring the Challenges of Non-Performing Assets in Indian Banks

Abstract

Non-Performing Assets (NPAs) have been a long-standing thorn in the side of the health and efficacy of the Indian banking sector. The buildup of bad loans not only deteriorates the financial wellbeing of banks, but it also diminishes the capacity of the banks to lend, thus frustrating economic growth. This research paper examines the trend, reasons, and effects of NPAs in Indian banks based on secondary data from FY2019 to FY2024. The research compares data from RBI reports, bank financial statements, and other reliable sources to study the impact of NPAs on profitability and capital adequacy. The results present evidence of an improving trend in overall NPAs owing to policy initiatives such as the Insolvency and Bankruptcy Code (IBC) but also emphasize the existing issue in the case of public sector banks caused by systemic inefficiencies. The statistical analysis ensures the presence of strong negative correlation between NPAs and bank profitability ratios like Return on Assets (RoA). The report concludes by proposing stronger credit risk management, early warning, and increased banking independence to effectively deal with the NPA crisis.