Annals of the University of Oradea: Economic Science (Jul 2017)
IMPACT OF NON-PERFORMING ASSETS ON THE PROFITABILITY OF BANKS – A SELECTIVE STUDY
Abstract
Non-performing Asset is a vital factor in the examination of financial performance of a bank. Non-Performing Asset is the key term for the banking corporations. Non-Performing Assets show the competence of the performance of the banks. Non-Performing Assets means which amount is not received by the bank in return of loans disbursed. Non-Performing Assets affect not only the finance institution but the total financial system. Thus a selective study has been done on public sector banks in India to evaluate the effect of Non-Performing Assets on the profitability of banks. Banks today are not judged only on the basis of number of branches and volume of deposits but also on the basis of standard of assets. NPAs negatively effect on the profitability, liquidity and solvency of the banks. This paper analyses the circumstances of NPAs in selected banks namely State Bank of India (SBI), Bank of India, United Bank of India, Bank of Baroda, Indian Overseas Bank, Punjab National Bank and Central Bank India. It also highlights the policies followed by the banks to tackle the NPAs and suggests a multi-pronged strategy for speedy recovery of NPAs in banking sector. Seven Public Sector Banks has been selected for the study the relation between Gross NPA and Net Profit of seven banks. In this paper is applying the panel regression. The result shows that except for SBI and PNB all the other banks exhibit a negative correlation between their gross Non-Performing Assets and net profits. But SBI and PNB is increased the net profit every year not affected by Gross Non-Performing Assets. Both banks are paying attention towards their NPA to recover their pending loans. The study is based upon secondary data recovered from Report of Progress of banking in India, Websites, Journals and Articles. The scope of the study is limited to analysis of nonperforming assets of public sector banks covering the period of 2007-2016.
