Non Performing Assets And Profitability Of Commercial Banks A Study Of Selected Public And Private Banks

Abstract

newline The Indian banking has come a long way from being a sleepy business institution to a highly proactive and dynamic entity. The reforms in Indian banking sector since 1991 are deliberated mostly in terms of the significant measures that were implemented in order to develop a more vibrant healthy stable and efficient banking sector in India. The effects of a highly regulated banking environment on asset quality productivity and performance of banks necessitated the reform process and resulted in the incorporation of prudential norms for income recognition asset classification provisioning and capital adequacy norms in line with international best practices. newlineThe improvements in asset quality and a reduction in NPA were the primary objective enunciated in the reform measures. In this context the present research critically evaluates the trends in movement of NPA of public and private sector banks thereby facilitates an evaluation of the effectiveness of NPA management in the new millennium. newlineAn effort has been made to establish relationship between NPAs and profitability of selected public and private sector banks. An attempt has also made to analyze the impact of macroeconomic variable on NPAs of Public and Private sector banks and to analyze the impact of NPAs on Capital Adequacy Ratio. newlineThe motivation to take this period is that it covers the reform process banking reforms major components of reforms like modifying the policy framework improving the financial soundness of banks strengthening the institutional framework new challenges and corporate governance. newlineThe research findings highlighted the need for improvements in NPA management in Indian public sector banks. The analysis revealed significant linkages between NPA and selected bank performance indicators In a highly competitive diverse sophisticated banking environment NPA can be effectively managed through incorporating more proactive measures notably an improvement in the credit evaluation appraisal and monitoring system of banks newline