Effects of Non-Performing Assets (NPAS) On the Profitability of Indian Banks

Abstract

One of the primary problems linked to the profitability and financial stability of the Indian banks is associated with non-performing assets or NPA. Rising amounts of stressed assets weigh on interest income, heighten the need to provision, and have a detrimental impact on general financial performance. The present empirical research examines the influence of the non-performance of the assets on the profitability of specific Indian banks and whether the relationship between the two different institutions in the public and private sectors is different. The study is founded on a panel data set of the six large Indian banks, 2016-2025, which included three state-owned banks (State Bank of India, Punjab National Bank, and Bank of Baroda) and three privately owned banks (HDFC Bank, ICICI Bank, and Axis Bank). Although the Gross Non-Performing Asset (GNPA) ratio indicates a decline in asset quality, Net Interest Margin (NIM) provides a measure of profitability. This study makes use of trend analysis, correlation analysis, multiple regression with an interaction term, and descriptive statistics. The findings demonstrate that NPAs unquestionably have a detrimental effect on bank profitability. The relationship between GNPA and NIM is strongly negative [-]0.744. Also, the regression findings indicate that an increase of one percentage point of GNPA in the case of banks in the private sector decreases Net Interest Margin on average by 0.1003 percentage points. The interaction of the statistically significant coefficient (p = 0.0139) indicates that the ownership structures influence the impact on non-performing assets (NPAs) on profitability. The research concludes that declining quality of assets affects the profitability and that the effects are more substantial in the case of a public and a private sector bank.