Impact of non-performing assets on the profitability in Indian scheduled commercial banks

Abstract

This study investigates the impact of non-performing assets (NPA) on the protability of Nepalese commercial banks using a panel data approach. This study employs panel data from 21 currently functioning commercial banks from 2017/18 to 2021/22, which totals 105 years of observations, to examine the impact of non-performing assets (NPA) on the protability of Nepalese commercial banks. To investigate the explanatory power of non-performing assets on banks' protability, the commercial banks' Return on Equity (ROE) is used as the dependent variable, and non-performing assets (NPA), the Laon loss provision to loan and advances (LLP), loan and advances in relation to total deposits (LTDR), return on investment (ROI), and capital adequacy ratio (CAR) are used as the controlled variables. Results from panel regression, correlation analysis, data stationary, and descriptive statistics are also reported. As suggested by the Hausman test, the xed effect (FE) regression model has been selected as the suitable model. The ndings show a signicant negative link between non-performing assets and bank protability. Operational and policy considerations are signicantly affected by this conclusion. In order to lessen the negative effects of an increase in non-performing loans and increases in the protability of commercial banks in Nepal, it emphasises the use of thorough creditworthiness assessments, ongoing credit monitoring, and the establishment of appropriate loan policies in compliance with regulatory requirements.