Impact of Non-Performing Assets on Profitability of Indian Banks- An Empirical Analysis

Abstract

The purpose of this paper is to investigate the relationship between rising non-performing assets and profit rate of banks by conducting an empirical estimation of the factors influencing the profitability of Indian scheduled commercial banks for the period 2004-05 to 2021-22. A collection of macroeconomic and bank-specific explanatory variables have been used to determine the profitability determinants. The current paper employs panel regression model  for three ownership banks—public sector banks, private sector banks, and foreign banks in India—for analytical purposes. Based on the assessment of panel data from all public, private, and foreign sector banks, we discovered that the rate of profit is negatively impacted by the rise in non-performing assets. Profitability is also found to be inversely correlated with bank size, inflation rate, and operating efficiency. The panel regression model's estimates indicate that the GDP growth rate, interest rate, net-interest margin, secured advances, capital adequacy, interest rate, and diversification of income have all favourably impacted Indian banks' profit rates during the study period.