ANALYZING THE IMPACT OF DISTRESSED ASSETS ON BANKING: A DESCRIPTIVE AND ANALYTICAL EXPLICATION

Abstract

A sound and healthy banking system is an indication of a stable economy. If the banking sector becomes vulnerable, it will have a devastating impact on the functioning of other sectors and eventually affects the growth of the country. Bad loans have disastrous impact on the operations of banks as they result in huge amount of losses. Non-Performing Assets (NPAs) act as a termite for the banking system as they gradually eat good assets by creating provisions and make banks hollow from inside. The present study is descriptive and empirical in nature analyzing the impact of NPA on banking operations of banks particularly on profitability of the Scheduled Commercial Banks (SCBs) for the period ranging from 2010 to 2020. The study revealed that NPAs have a catastrophic impact on profitability, productivity, liquidity, solvency, credibility, and competitive functioning of banks. High level of NPAs has a catastrophic impact on net profit of banks. The study also found that there is significant negative correlation between NPAs and net profit of SCBs. If NPAs level will not brought down upto a manageable limit, they will pose serious threat for banks survival, growth, and expansion.