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Asian Journal of Management
ISSN: 2321-5763(Online), 0976-495X(Print)
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Effect of NPAs on Financial Performance of Public Sector Banks in India: A Study of Changing Scenario
Manminder Singh Saluja
Dr. Manminder Singh Saluja1, Ms. Sweta Sharma2
1Assistant Professor (Senior Scale), International Institute of Professional Studies, Devi Ahilya University, Indore
2Student MBA (MS) 2 Yrs, International Institute of Professional Studies, Devi Ahilya University, Indore
Banks last year had either taken a hit on their profits or incured losses to accommodate the NPA Cleanup. NPA refers to the Non-Performing Assets which are created if a loan or advance is not paid for 90 days. The purpose of this research is to identify the effect of NPAs on financial performance of Public Sector Banks. As the need to eliminate the proliferating NPAs in financial accounts of Public sector banks has increased, the impact that it will have on their financial performance is unanswered yet. In this study, we have made an effort to find out the estimated effect of NPA on the Public sector banks. Regression models were used to find out the relationship between ROA of banks and their NPAs together with macro variables. The findings from this study shows that NNPA as percentage of total advances and as a percentage of total assets is having a high elasticity i.e. value of elasticity greater than one – inversely proportionate with Return on Assets for UCO Bank and lowest inversely proportionate elasticity (-0.06) for Bank of Maharashtra among the top 10 stressed PSU banks. This confirms an inverse relationship of NPA with ROA, which affirms that escalating NPA will slack the profitability of these banks in near future. This can iron out with the NPA reconstruction. The NPA reconstruction will result in short run denting on profitability, but will be beneficial for their growth and expansion in the long run.
NPA, Return on Assets, PSU Banks, RBI, Cleanup.
Manminder Singh Saluja, Sweta Sharma. Effect of NPAs on Financial Performance of Public Sector Banks in India: A Study of Changing Scenario. Asian J. Management; 2017; 8(3):577-586.
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