Comparative Study of NPA Levels in Public and Private Sector Banks: Causes and Consequences

Abstract

NPAs continue to be one of the most serious encounters confronted in the Indian banking sector. This research paper gives a comparison and contrast of NPA levels in the public and private sector banks and their cause and long term effects. The study analyses the financial information of a chosen sample of public and private banks for a given period with a view to assessing trends, sectors of exposure, asset quality and recovery mechanisms. It examines macroeconomic and bank-specific factors leading to a build-up of NPAs, including policy choices, risk intermediary practice, and sectors lending pattern. The evidence indicates that the NPA levels of public sector banks are considerably advanced than that of their private rivals which is largely attributed to policy-driven lending and a delayed recovery process. On the other hand, the private sector banks are characterized by better structured credit appraisal systems and active attempts at risk mitigation. The study carries further analysis on the implications that NPAs have on profitability, credit growth and financial stability. Drawing from the insights obtained, the paper gives strategic recommendations to enhance the quality of assets and NPAs in the bank ecosystem. This study is helpful in policymaking and enhancing the governance in Indian banking sector to ensure soundness in financial health and investor’s confidences.