The Banking system plays a vital role in the finance sector.

The Narasimhan Committee

introduced the concept of NPA. It is the Best way for judging the status of the Banks.
The burden will lie on the bank for the non payment of loans. When the loans are not
repaid there will be huge loss to the bank & thee will be money to transact between the
customers. It is a risk arising from the customers to the bank. The bank needs to bear all
the risks. Nowadays NPA is kept on increasing in both public sector banks and private
sector They face ultimate survival in the market. As compared to public sector- priv.ate
sector banks have less non-performing assets.
Non-performing assets are the only reasons to fall on revenue.
The object of this comparison between the private sector banks and public sector banks
is to outcast the impact between them and the reasons behind the banks on non-
performing assets.
And to suggest the way to reduce the non-performing assets.

What is Non-Performing Assets (NPAs):

A bank, the loans given by the bank is considered as itsassets. So if the principle or
the interest or both the components of a loan is notbeing serviced to the lender
(bank), then it would be considered as a Non-Performing Asset (NPA).
Any asset which stops giving returns to its investors for a specified period of timeis
known as Non-Performing Asset (NPA). Generally, that specified period of time is 90
days in most of the countries andacross the various lending institutions. However, it is
not a thumb rule and it mayvary with the terms and conditions agreed upon by the
financial institution.

IMPACT OF NPA ON BANKS

1) LIQUIDITY POSITION

If the bank evaluates less capital the future business concern, which affects the position
of banks and creating a mismatch between the assets and liability and they force the
bank to raise the resources at a high rate. So
there will be an impact on the profitability of banks, were they not able to recover the
amount from the borrower the level of profits will come down.

2) UNDERMINE BANK’S IMAGE:

Increase in non-performing assets which shadows the domestic markets and global level
markets, on that situation the bank profitability decreases which lead to the bad image to
banks.

3) EFFECT ON FUNDING:
Increase in non-performing assets leads to scarcity in funding to other borrowers. As
well as the Indian capital market also get affected. And then there will be only a few
banking institutions lend money.

4) HIGHER COST OF CAPITAL:

It shall result in increasing the cost of capital as banks will now have to keep aside more
funds for smoothness operations.

5) HIGH RISK:
High on non-performing assets, low profitability, high risk in business and work against
the bank and may take the two circumstances survival of the bank. And it affects the
risk-bearing capacity of the bank.

Impact of NPA on Banks

Change in Interest Rate:

Higher NPA reduced the reduction of interest rate on the deposit into banks & poor
public is directly affected by this
Levies of charges for every operation:
The bank is recovering their losses by those levying operations which are free of cost
like withdrawal limit of ATMs, cash deposits in other branches etc.

Increase in Current Account Deficit:

It is main cause of the increases in current account, deficit & interest rates. CRR, SLR
are directly affected by the system.

Confidence In Share Holders:

Higher NPA losses the confidence of share holders.