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.

Keywords

NPAs, banking, SCBs, profitability

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