The Problem of Rising Non-performing Assets in Banking Sector in India: Comparative Analysis of Public and Private Sector Banks

The growth of the economy depends upon the efficiency and stability of the banking sector. The most important factor which measures the health of the banking industry is the size of NPAs. Non-Performing assets have direct impact on the financial performance of banks i.e. their profitability. It denotes the efficiency with which a bank is optimizing its total resources and therefore, serving an index to the degree of asset utilization and managerial effectiveness. NPAs affects the profitability of the banks in terms of rising cost of capital, increasing risk perception thereby affecting liquidity position of banks. This paper attempts to first examine the level of NPAs in the banking sector in India and then analyze the causes for increasing NPAs. In the final part of the paper, measures which banks can take to reduce their NPAs have been suggested. The study also compares the performance of the public sector banks with the private sector banks. The secondary data collected from different sources has been used in the study. The study shows that the magnitude of NPAs is increasing in public sector banks as compared to the private sector banks. Therefore banks need to effectively control their NPAs in order to increase their profitability and efficiency.