Trends, Determinants and Impact of NPA on Indian Banking Sector

Credit risk remains as the vital and challenging corporate function as it will affect the profitability of banking sector. The research found that NPAs affect profitability of the public sector banks and private sector banks. As the level of NPAs increasing, profitability of banks has been decreasing. However, Bank specific determinants and macro-economic determinants explained that cost of fund, net interest margin and weighted average lending rate, index of industrial production, index of agriculture production have shown an influence on the level of gross NPAs of public sector banks and private sector banks. Bankers should take an initiative to maintain credit deposit ratio, cash deposit ratio and its capital base if banks have strong capital base and sound profitability then it will help to lower the level of NPAs. Banks should also pay more attention on bank specific variables and macro variables which influence level of NPAs of Indian Banking Sector and take initiatives to control these variables. Banks should focus on macro variables like WALR, index of industrial production and index of agriculture production and bank specific variables like COF and NIM to control NPAs.