Empirical study of non-performing assets and financial performance: Impact on public and private sector banks

Non-performing assets refer to loans or advances that have stopped generating regular interest income for banks because the borrowers have failed to make repayments for a specified period. NPAs are considered a significant concern for banks as they affect profitability, capital adequacy, and overall financial health. Effective management of NPAs is crucial for maintaining a healthy banking sector and supporting sustainable economic growth. Therefore, this paper analyzed the NPAs and returns on assets of the public and private sector banks for the period of four years i.e., from 2018 to 2022. The study collected data from four public (State Bank of India; Punjab National Bank; Bank of Baroda and Canara Bank) and four private sector banks (HDFC Bank; ICICI Bank; Axis Bank and Kotak Mahindra Bank). The present study considered following parameters for measuring NPAs and Financial Performance like Net NPA percentage and Return on Assets (ROA) respectively. The study employed panel regression model for comparing the relationship between variables. According to the study, NPAs generally had a negative and significant impact on the financial performance (ROA) of banks in the public and private sectors. By investigating, the total effect of Gross NPAs and Net NPAs on the financial performance of banks will broadens the body of literature in the Indian context.