Impact of NPA on Profitability and Flow of Credit in India

Abstract

In Indian economy, banks and financial institutions plays a crucial role. Their performance indicates the direction of growth of our economy. The Indian banking sector has been facing serious problems on account of the mounting up of Non-Performing Assets (NPAs). The growth in NPA has a direct impact on the profitability and level of risk of these commercial banks. The stress created due the rising tendency of non-performing assets on the profitability, capital adequacy and operational effectiveness are highly significant. The recommendations of Narasimham committee and Verma committee helped our commercial banks to tackle the problems of NPAs only to a certain extent. There seems to be no unanimity in the proper policies to be followed in resolving this problem. An attempt is made in this paper to understand NPA, how it is effect in profitability as well as the competitiveness of commercial banks.