NPAs and Profitability in Indian Banks: An Empirical Analysis
| 2024 | |
| Volume - VII, Issue - I |
|
| NPAs and Profitability in Indian Banks: An Empirical Analysis | |
| Mr. Diptiranjan Nayak, Dr. Sasmita Mishra & Mrs. Sarada Kar | |
| NPAs and Profitability in Indian Banks. | |
| The paper examines the impact of non-performing assets (NPAs) on the profitability of Indian public sector and leading private banks, using data from 2005 to 2019. NPAs, defined by the Reserve Bank of India as loans overdue for more than ninety days, are categorized into substandard, doubtful, and loss assets. High NPAs reduce bank profitability due to declining interest margins and rising operating costs. This study uses panel data from 39 banks, estimating profitability determinants through both bank-specific factors (non-performing advances, deposits, non-interest income, interest income, operational efficiency, capital adequacy) and macroeconomic factors (GDP growth, inflation, interest rates). The findings indicate that increasing NPAs negatively affect profitability, while non-interest income, interest income, capital adequacy, and GDP growth positively contribute. The study suggests reducing NPAs and operating costs to enhance profitability. Though data for 2020 is available, it was excluded due to recent mergers among Public Sector Banks, reducing their number from 20 to 12. Future studies may incorporate the effects of these mergers over a longer period to understand their impact on NPAs and profitability. | |
| NPAs and Profitability in Indian Banks: An Empirical Analysis | |
 |
|
| 1. Al-Homaidi EA, Tabash MI, Farhan NHS, Almaqtari FA (2018) Bank-specific and macro-economic determinants of profitability of Indian commercial banks: a panel data approach. Cogent Econ Finance 6(1):1–26 2. Al-Jafari MK, Alchami M (2014) Determinants of bank profitability: evidence from Syria. J Appl Finance Bank 4(1):17–45 3. Bace E (2016) Bank profitability: liquidity, capital and asset quality. J Risk Manag Financ Inst 9(4):327–331 4. Batra S (2003) Developing the Asian markets for non-performing assets- developments in India. 3rd Forum on Asian Insolvency Reform, Seoul, Korea 5. Bawa JK, Goyal V, Mitra SK, Basu S (2019) An analysis of NPAs of Indian Banks: using a comprehensive framework of 31 financial ratios. IIMB Manag Rev 31(1):51–62 6. Berger A (1995) The relationship between capital and earnings in bank- ing. J Money Credit Bank 27(2):432–456 7. Berger AN, DeYoung R (1997) Problem loans and cost efficiency in com- mercial banks. J Bank Finance 21(6):849–870 8. Bourke P (1989) Concentration and other determinants of bank profit- ability in Europe, North America and Australia. J Bank Finance 13(1):65–79 9. Chowdhury MAF, Rasid MESM (2017) Determinants of performance of Islamic banks in GCC countries: dynamic GMM approach. In: Mutum DS, Butt MM, Rashid M (eds) Advances in Islamic finance, marketing, and management. Emerald Group Publishing Limited, Bingley, pp 49–80 10. Cucinelli D (2015). The impact of non- performing loans on bank lending behavior: evidence from the italian banking sector. Eurasian J Bus Econ 8(16):59–71 11. Demirguc-Kunt A, Huizinga H (1999) Determinants of commercial bank interest margins and profitability: some international evidence. World Bank Econ Rev 13(2):379–408 12. Duraj B, Moci E (2015) Factors influencing the bank profitability-empirical evidence from Albania. Asian Econ Financ Rev 5(3):483– 494 13. Etale LM, Ayunku PE, Etale E (2016) The impact of non-performing loans and bank performance in Nigeria. Int J Humanit Soc Sc Invent 5(4):1–5 14. Hashem HY (2016) Determinants of Egyptian banking sector profit- ability: time-series analysis from 2004–2014. Int J Bus Econ Sci Appl Res 9(2):73–78 15. Islam MdS, Nishiyama S (2016) The determinants of bank profitability: dynamic panel evidence from South Asian countries. J Appl Finance Bank 6(3):77–97 |