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The smooth function of Banking Sector of a country guarantees the healthy financially growth of an economy. One of the major evaluators of a trouble-free functioning of Banking Sector is Non-Performing assets. The performance of Non-Performing Assets of the banks is the major predictor of the sound financial health of banks. The purpose of the study was to measure the influence of NPAs on the profitability of Indian public and Private sector banks for the period of ten years. Additionally, the present study also compared the overall performance of big banks of both Public and Private Sector Individually. It study discusses the NPA performance of various public and private sector banks and their influence on profitability in India from 2014-2015 to 2022-2023. The results of the study indicated that there is definitely a rise in the NPAs of public sector banks as compare to Private sector Banks and the rise of NPA seemingly have a negative effect on the profitability of banks.

The objective of this paper is to study A Study of Non-Performing Assets and Profitability in Banking Sector of India.

In the banking industry, non-performing assets have emerged as a significant concern for banks worldwide (Lateef and Mohammed, 2021;Sahooet al., 2023).Indian banking sector is facing a major problem of NPA (Mishra and Pawaskar, 2017). These non-performing assets refer to loans or advances that are in default or are expected to be in default, meaning the borrower has not made regular payments or has defaulted altogether. As a result, banks face the challenge of reducing their non-performing assets and improving their net profitability (Tandonet al., 2017). According to a study conducted on a sample of banks in India covering the time period from 2005 to 2019, it was found that reducing non-performing assets and operating costs is crucial for improving bank profitability. The study highlighted that the increasing incidence of non-performing advances can have adverse effects on the performance and profitability of banks. The study also emphasized the negative impact of non-performing assets on the rate of profit of Indian banks.Nachimuthu and Vina (2019) worked to find the implication of increasing net performing assets.Results concluded that the profitability of the banks is hampered due to an immense increase in non-performing assets. The relationship between non-performing assets and the net profitability of banks has been a topic of significant research and analysis in recent years. Several studies have examined the determinants of bank profitability, with a specific focus on the impact of non-performing assets (Das, 2023). However, timely problem recognition and proper self-monitory the problems regarding NPA could be controlled up to a great extant. With the help of self-help group recovery of loans could also be managed (Rajeev and Mahesh, 2017).

Sahni and Seth (2017) analyzed various causes for rise in NPA of banks. Based on their research they have suggested that a timely assessment of credit worthiness of borrowers would surely contributein the recovery of loans. Sharma (2018) not only elucidated the undeniable importance of banking sector in the economic development of a county, butalso emphasized the importance of curbing NPA problems to reduce their burden. The author has also listed certain steps including practicable regulatory standards and opportunities, and suggested implementations of these standards to build a strong financial sector in India. These findings were also supported by Benerjeeet al. (2018) who stressed on the importance of better and strong strategy formulation and their timely execution. Study reported that poor credit management poorly analyzed and sanctioned loans without properly introspecting the borrowers capacity, and willing loan defaults by customers were the major reasons for a piled up NPAs. The author suggested that strict provisions by the government can help in bringing down the piled up NPA.

Kiran and Jones (2016) performed a study on SBI and 5 five nationalized public sector banks of India to evaluate how non-performing assets affects the profitability of banks and came to the conclusion that except for SBI all the banks faces a negative effect of increased non-performing assets.  In fact the study claimed that SBI remained unaffected by the gross non-performing assets. Dudhe(2017) also suggested somewhat similar kind of results and stated that all the other public sector banks other than PNB and SBI showed a negative correlation with their net performing assets. As these two banks are paying a close attention to their NPA and taking corrective measures to revive their bad loans. Somewhat similar findings were reported by many researchers(Kaur and Gupta, 2015).

There were studies which solely focused on the performance of private sector banks and suggested that being more profit oriented organizations private sector banks manage their non-performing assets on strict terms (Jain and Sheikh, 2012). On the other hand some of the studies also claimed that public sector banks have a higher rate of non-performing assets when compared with private sector banks and indeed there is a requirement of paying special attention to the management of NPAs (Wadhwaet al., 2020; Balasubramaniam, 2012;Tandonet al. 2017). There were other researchers who tried to compare the performance of profitability of public and private sector banks to find out the effect and concluded that indeed an increase in non-performing assets leads to a damage to the banks credibility (Gnawali, 2018;Tyagiet al., 2020). However many studies shared a different kind of opining when it came to public and private sector banks. There were studies which claimed that in spite of holding the biggest share in the banking sector, public sector banks performed rather poorly because of their mismanagement of non-performing assets thus portraying their bad health in the profitability segment (Chakraborty, 2017). One such study analyzed a sample of 39 public sector and private banks in India and found that non-performing assets have a negative impact on the profitability (Das, 2023). The growing rate of non-performing assets is indeed a subject of concern and a check on the NPA and operating costs is must if banks want to boost their performance in profitability as well as loan asset (Das and Uppal, 2021).

The previous research pointed towards the constant changes in the profit patterns of banking industry therefore an immediate need to keep a constant check on the performance of banks. Therefore, the present study was aimed to analyze the changing pattern of Non-Performing Assets of top most Public and Private sector banks from 2014 to 2023. In addition to that, the present study also analyzed which Public and Private sector banks showed the major increment in non-performing assets.Additionally, a comparative evaluation of non-performing assets and profitability of these two sectors was also done to measure the overall performance of two sectors

A sample of five Public Sector banks (namely State Bank of India, Bank of Baroda, Punjab National Bank, Union Bank and IOB) and five Private Sector banks (i.e. HDFC, ICICI, Kotak Mahindra Bank, AXIS Bank and Indus bank) was considered. The study is based on secondary data analysis and the data for the same was drawn from the official websites and publications of RBI, various journals and articles. Data period considered for the present study was from 2014 to 2023.Descriptive statisticswere employed to get the average performance of public sector banks and further to compare the results of profitmargin ofthe banks of both sectors.

1. Assessment of Non-Performing Assets of Public Sector Banks

The performance of net NPA position of banks in public sector showed that in the past years the NPA range of public sector banks has increased dramatically. An overall performance chart based on the average growth rate performance of each bank showed that the average rise innon-performing assets of SBI was huge, on the other hands big landers like PNB, UNION Bank And Bank of Baroda were not far behind in their high NPA performance. Further, investigation carried out based on the review conducted by RBI showed that SBI recorded a sharp rise in its NPA during 2016-2020, whereas for PNB it extended from 2016 to 2022. Union bank experienced a significant rise in the Net non-performing assets during 2016-2022, and according to the latest record they have somehow managed to control their poor non-performing asset situation to a significant level. Bank of Baroda revealed a high growth rate of NPAs during 2016-2021, however the growth was not constant and the data showed that there were year when their net non-performing assets were low. Further, IOB managed to control their growing NPAs and confined their poor non-performing asset growth from 2016-2019.(Table I)

Considering the performance of public sector banks as a whole we notice that SBI showed the highest average NPA (i.e. 48763.39 crore) which was much higher than PNB bank, whichexperienced a huge NPA growth of29544.85 cr. Again, data showed that the average NPA growth for Union Bank and BOB were 17159.02 and 15580.85crore respectively.  On the other hand IOB showed an average growth of 10747.23crore of NPA overall since 2014-2023. (Table I)

2. Assessment of Non-Performing Assets of Private Sector Banks

Next, if we look at the growth rate of NPAs of Private Sector and look in the performance of every bank individually we noticed that ICICI has shown a major increase in their NPA during 2017-2021. Again, AXIS bank has shown a spurt during 2018-2022. While for HDFC and KOTAK it was during 2019-2023 respectively. However, the growth on NPA for INDUS Bank was commendable as being in the big brands of the industry of Private Sector Banks it showed a relatively managed performance in NPA. (Table II)

If we consider the performance of private sector banks as a whole we notice that ICICI has the highest average NPA (i.e. 12117.5 crore) which was much higher than AXIS bank which managed to limit their growth to 6678.23 cr. Further, data showed that the average NPA growth for HDFC andKotak Bank were 2756.95 and 1456.51 crorerespectively.  On the other hand INDUS Bank showed the minimum average growth (i.e. 1075.708crore) which was the lowest growth of NPA overall. (Table II)

Table I:

Descriptive analysis of Non-Performing Assets of Public Sector Banks (In Crore)

                           Source: Author’s calculation

Table II:

Descriptive analysis of Non-Performing Assets of Private Sector Banks (In Crore)

                           Source: Author’s calculation

3. Comparing performance of Non-performing assets of Public and Private Sector Banks

If we compare the growing pattern of NPA year after year we will find that there is a spurt in the growth of NPAs of Public Sector Banks, especially during 2018-2021. The NPA performance of Private Sector banks was much less than their counterparts in the industry. Although the duration in the increase in NPA was almost the same for both the sectors in the industry, yet it was shocking to note that the relative performance was much better by Private Sector banks than Public Sector Banks.

4. Assessment of Net Profit of Public Sector Banks

Table III presents the performance of net profit of all public sector banks from the period of 2014-2023. The average net profit performance of SBI had been sustainable, as being the largest performers of NPA it still managed to secure the higher performer of net profits among the top most banking companies in public sector, indicating that the high rate of NPAs did not had a damaging influence on the profits of the bank. The net profit performance by BOB and UNION banks was manageable as they sustained a respectable figure of 2468.583 and 1086.344 crore respectively.However, the image portrayed by the net performance of PNB and IOB were quiet disturbing as the figures suggested a heavy loss to the profitability of these banks.

5. Assessment of Net Profit of Private Sector Banks

Similar Table IV gives a glimpse of net profits of top most brands of private sectors banks. Figures in the table indicate that even after a high NPA as compared to its competitors HDFC managed to secure a better position in terms of net profit. Whereas, ICICI bankstill needs to work on its policies to improve its net profit (i.e.13001.34 crore). Other banks (KOTAK, AXIS and Indus Bank) managed to secure a substantial amount of net profits and showed figures which were nearby each other.

Table III:

Descriptive analysis of Net Profits of Public sector Banks (In Crore)

                           Source: Author’s calculation

Table IV:

Descriptive analysis of Net Profits Assets of Private sector Banks (In Crore)

                           Source: Author’s calculation

6. Comparing performance of Net Profits of Public and Private Sector Banks

The Profit margin of Public sector banks had been highly sensitive as compare to the private sector banks from 2014-2023. Figures indicated that the majority of Private sector banks not only managed to secure their position in the confinements of a sustainable profit margin but also managed to perform far better than their public counterparts, indicating the sole effectiveness of their robust strategy making and their effective and timely implementation. On the other hand Public sector banks showed themselves in a far grave situation by not only being able to recover the expected profits but also failing to secure the required sustainability in profit making, indicating that there is still much to be done to improve their overall performance.

The present study was conducted with a twin objective to evaluate the performance and growth ofNPA of premium Public and Private sector banking companies and to study the influence of their NPA performance on their Profitability for the time period from 2014-2023. In addition to that the study also attempted to compare the performance of Public and Private sector banks.The overall results of the study indicated that the problem of non-performing assets in the Indian banking sector is quite evident and that there is indeed variation between the two. The situation of rising NPAs is spreading its claws in every sector gripping the entire economy in this crisis. Almost every bank experienced a major spurt in the level of their NPA during 2016-2020. One of the reasons for this sharp rise could be that the government of India made it mandatory for all the banks to display true figures of their non-performing assets online to promote transparency and fair recognition system. Furthermore, Government of India also write off an enormous amount of NPAs which could probably be the reason for a huge dip in NPA after 2020. Additionally,the sharp rise in the NPAs of Public sector units was found to be of major concern, indicating that the necessity to curb the rising NPA is indeed grave.The findings of the present study seem to agree with the studies conducted by Wadhwaet al. (2020); Balasubramaniam (2012); andTandonet al.(2017) who claimed that there is a need to pay special attention to the NPA growth of Public Sector Banks.Big brands of Public sector like SBI have experienced a great setback in their net profits but managed to retain their profit margins. However, some of the other banks in the sector experienced heavy losses (PNB and IOB), which indicated the bad health of profitability of Public sector, further agreeing with the results reported by Chakraborty(2017).Whereas the banks in private sector seemed to be unfazed by this crisis which showed that immediate and significant actions were taken by private sector banks to reduce their NPA burden. A major reason for this difference could be the motive of two sectors i.e. Public Sector is widely involved in financially supporting specifically those sectors of economy which play a vital role in the economy of the country, on the contrary being solely involved in profit making there a wider scope for private sector banks in the lending business for which they not only give special importance to their lenders,but also follow much strict policies for their landers. The picture is clear. Public sector banks must take a cue and start adopting strict policies to strengthen their overall performance. In addition to that they have to strengthen their policies and ensure the effective implementations to reduce the burden of net performing assets.Therefore, RBI must take apt steps to implement stringent policies and strategies to manage the asset quality of public sector banks as well. Although, time and again RBI continuously come up with corrective actions for the better profitability performance of the banks, which has no doubt shown positive development, there is still a lot to be managed and time will decide how corrective these measures will prove.

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