Impact of NPAs upon Profitability of State Bank of India- A critical review

Abstract

Banking sector is one of the leading indicators of a nation and represents one of the most important components of a nation’s capital. In a same manner loan represents the one of the important components of a bank’s total assets, which generates income for the bank. Timely recovery of the lone is important for the performance of the banks. A loan whose interest or principle has been overdue for over 90 days become NPAs and treated as bad loan. These bad loans are not able to generate income for the bank which affects the profitability of the bank. Therefore, the non-performing loans ratio is a critical tool to measure a bank’s performance. The main function of a bank is to accept deposit which is liability of a bank and provide loan generates income for the bank. The quality of loan assets is the most important factor for the basic viability of the banking system. Lower level of the non performing assets helps the bank in consolidating their position and gives credence to efficiency of the management. The bank not only evaluate the creditworthiness of the borrower at the time of processing of loan but the close monitoring of the borrower regularly will help the banks to reduce the level of NPA. In the era of globalization where whole world is treated as the domestic market, the Indian banks are not able to compete due to certain inherent weakness. The purpose of study is to investigate whether there is a significant relationship between non- performing assets and the performance of bank.