Das and Uppal Futur Bus J 2021, 7(1):53

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RESEARCH Open Access

NPAs and profitability in Indian banks:

an empirical analysis
Santosh Kumar Das* and Khushboo Uppal

Abstract
As financial intermediaries, the commercial banks to a large extent depend on the performance of their lending
as a critical source of earning. Due to increasing loan failures, the share of non-performing advances has increased
substantially in recent years, thereby adversely impacting their profitability. The paper has examined the NPAs and
profitability relationship by estimating the determinants of profitability of 39 public sector and private banks for the
time period from 2005 to 2019. Using a set of bank specific and macroeconomic predictors of profitability, we found
that NPA has negative impact on the rate of profit of the Indian banks. The study suggests that the banks must reduce
their NPAs and operating cost to improve their profitability.
Keywords: NPAs, Bank performance, Bank profitability, Indian banks
JEL Classification: G21

Introduction of NPAs—substandard assets, doubtful assets, and loss

Growing incidence of non performing advances or loans assets [24]. A substandard asset is one if it remains as
can have potential adverse impact on the performance of an NPA for a period less than or equal to 12 months.
the banks by squeezing their earnings, thereby reducing Similarly, a doubtful asset is defined as an asset which
their profitability. Typically, a loan or advance becomes has remained as an NPA for a period of more than
non-performing assets (NPAs) when a borrower defaults 12 months. In case of loss asset, the loss has already been
on the repayment of either the principal amount or una- identified and the amount is not written off. The combi-
ble to serve its debt. An NPA not only makes an asset nation of the above three types of assets forms total NPAs
unproductive, banks also fail to recover the principal in a bank. The NPAs reduce the profitability of banks due
capital. On the one hand, the interest earning of the bank to increase in operating costs and decline in their inter-
declines; on the other side, there is a risk of recovery of est margins [7, 19]. Studies have shown that a bank with
principal amount. Falling interest income while directly high level of NPAs generally incurs ‘carrying costs’ on
impacts the profitability of a bank, under recovery of non-performing assets that reduces their profitability [4].
principal capital can result in erosion of bank’s capital Also, a rise in NPA is likely to cause adverse impact on
base. Beyond a threshold level, the combination of both the profitability of the banks due to huge amount of pro-
can potentially affect the stability a bank. visioning requirements out of operating profits, which
The Reserve Bank of India (RBI) has defined the NPAs acts as a drain on profitability of banks. Thus, provision-
as those assets for which principal or interest payment ing and carrying costs of NPAs act as drain on the prof-
remains overdue for a period of ninety days. The RBI itability of the banks. Berger and Young [7] examined
has classified three types of assets within the category the relationship between bad loans and bank efficiency.
They found that increasing incidence of loan failures
forces banks to incur extra operating costs in the form
*Correspondence: [email protected]; [email protected] of increased spending on monitoring of such assets and
Institute for Studies in Industrial Development, 4, Institutional Area,
Vasant Kunj, New Delhi 110070, India selling off of these loans. The banks are preoccupied with

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Das and Uppal F utur Bus J 2021, 7(1):53 Page 2 of 9

recovery procedures instead of concentrating on expand- Cucinelli [10] using a sample of 488 listed and unlisted
ing their business. Higher the bank operating costs, lower Italian banks over a period from 2007 to 2013 found
will be the cost efficiency of banks and thus lower will be that an increase in credit risk by either a rise in the non-
the profits. Operating costs include wages and salaries performing loans ratio or a fall in credit portfolio qual-
of employees and costs of running branch offices. These ity as represented by a rise in loan loss provision ratio
costs have an adverse impact on profitability of banks leads to banks to decrease their lending activity, which
[30]. in turn can negatively impact their profitability. Higher
There are several factors, including non-performance NPAs results in lower bank profitability as higher NPAs
of loans that can potentially affect the profitability of the require increased provisioning which eats into the profits
banks. It can broadly be categorised into the bank spe- of banks. Duraj and Moci [12] in their study of studied 16
cific, and macroeconomic factors. The bank-specific fac- Albanian banks between 1999 and 2014 found this nega-
tors include non-performing advances [7, 19], deposits tive relationship.
[20, 25], non-interest income [30] (Harbi 2019), interest A study by Islam and Nishiyama [15], using data for
income [5], operational efficiency [1, 17], and capital ade- 259 commercial banks in South Asian countries includ-
quacy [6, 11]. The macroeconomic factor includes GDP ing India, for the period from 1997 to 2012, found that
growth [11, 30], rate of inflation [9], and interest rate [8, there is a negative relationship between non-performing
11, 29]. loans and bank profitability. Similarly, Hashem [14] in
The present paper empirically analyses the impact of his study of Egyptian banks for the period from 2004 to
NPAs on the profitability of Indian public sector and 2014 reported that higher loan loss provisions represent
leading private banks. Accordingly, the determinants of higher credit risk and hence lowers asset quality of banks
profitability have been estimated. The paper spreads over which badly affects bank profitability. Bace [3] used data
five sections. The introduction section has provided the for 13,000 deposit taking institutions around the world
background of the paper. The methodology section elab- for the period from 2014 to 2015 and found negative
orates on the empirical strategy, data, variables and esti- relationship between the NPAs and bank profitability.
mation model. The findings of the empirical exercise have Similarly, a study by Etale et al. [13] that investigated the
been presented in the results section. In the discussion relationship between the non-performing loans and bank
section, the findings of the study have been discussed. profitability for the period between 1994 and 2014, found
The concluding remarks have been presented the conclu- a negative relationship between the two. Ozurumba [23],
sion section. in his study of Nigerian commercial banks, concluded
that the non-performing loans had an adverse impact on
Literature review the profitability of banks for the period between 2000 and
Previous studies, those have examined the relation- 2013. A study by Ozgur and Gorus [22] using data for
ship between the non-performance of loans and profit- Turkish banks for the period from 2006 to 2016 reported
ability of banks, have overwhelmingly concluded that a negative relationship between non-performing loans
NPAs have adverse impact on the profitability of the and bank profitability. Previous studies have used the
banks. There are several other factors, including NPAs following dependent and explanatory variables for the
that affect profitability which have been discussed in the empirical analysis.
literature.
In a study of banking sector of the US, for the period Profitability
between 1970 and 1976, Martin [18] concluded that a rise In the literature, usually the Return on Assets (ROA) is
in NPAs hurt the earnings of the banks, which reduces taken as a proxy for profitability, which measures the
the profitability of banks. Masood and Ashraf [19] stud- percentage of profits that a bank earns with respect to its
ied 25 Islamic banks from 12 countries from the Middle total assets [15, 17, 27]. We have used ROA as a proxy for
East, East Asian, African and South Asian regions for the profitability as it reflects the average asset value during a
period from 2006 to 2010. They found that non-perform- fiscal year [15].
ing loans negatively affects the bank performance and
profitability. Ongore and Kusa [21] studied commercial Bank specific determinants of profitability
banks in Kenya for the period from 2001 to 2010 and Net Non-Performing Advances (NNPA): The higher the
found a negative relationship between bank profitability portion of income generating assets among total bank
and non-performing loans. Al-Jafari and Alchami [2] in assets, the higher would be the interest income of the
their study of 17 Syrian banks, from 2004 to 2011, found banks. When NPAs increase, the proportion of inter-
a negative relationship between credit risk, as repre- est earning assets falls, which leads to a fall in interest
sented by loan loss provision, and bank profitability. income, and hence ROA declines. Thus, NPAs and ROA
Das and Uppal F utur Bus J 2021, 7(1):53 Page 3 of 9

have a negative relation; as NPA rises, return on assets Sufian and Habibullah [30] used the ratio of overhead
(ROA) of banks falls [5]. Masood and Ashraf [19] and expenses to total assets as a measure of overhead
Berger and Young [7] have used non-performing loans to expenses. Al-Homaidi et al. [1] used ratio of operating
total assets as a measure of non-performing assets. expenses to interest income as a measure of operating
efficiency and argued that lower the ratio, higher will be
Deposits the management efficiency and higher will be the profits
Deposits are the principal and the cheapest source of of banks, whereas Kohlscheen et al. [17] took the ratio of
funds for banks. Therefore, the more deposits a bank operational expenses to gross revenues as the measure of
collects, higher will be the availability of funds for gen- operating efficiency.
erating loans and for other profitable uses such as invest-
ments, higher will be the bank profitability. Thus, a Macroeconomic determinants of profitability
positive relationship between deposits and profitability is GDP growth rate
expected [20, 25]. It is the value of all final goods and services produced in
a country in a given period of time. During higher eco-
Non‑interest income nomic growth, profitability of banks would be higher
The non-interest income is the income of banks from because it encourages banks to lend more and charge
sources other than interest bearing assets. It is an indica- higher interests [11, 30].
tor of bank’s off-balance sheet business and fee income,
that is non-traditional activities. Non-interest income Inflation
consists of commission, service charges, and fees, guar- It is the rate at which general price level of goods and ser-
antee fees, net profit from sale of investment securities, vices rises and the purchasing power of currency falls.
and foreign exchange profit. Higher the bank’s non-inter- Studies have found that profitability of banks will be
est income, higher will be the profits [30] (Harbi 2019). higher with inflation. It has been used by prior studies on
We have used the ratio of non-interest income to total banks’ profitability [1, 9, 11, 19].
income as the variable for non-interest income.
Interest rate
Interest Income: Net Interest Margin (NIM) There has been mixed evidence with respect to the rela-
Interest income is the difference between the interest tionship between interest rate and profitability. Low
rate a bank pays to its depositors and the interest rate it interest rates along with stiff competition among banks
charges to its borrowers. It is measured as a ratio of Net put pressure on interest margins of banks and hence
Income to Total Assets. NIM represents income of the negatively affect bank profitability (Trujillo-Ponce 2013).
banks from its ‘core lending business’. NIM is adversely Studies such as Demirguç-Kunt and Huizinga [11, 29],
affected by NPAs, because when an asset becomes an Bourke [8] have found a positive relationship between
NPA, it stops generating interest income and hence, interest rates and bank profitability. The repo rate has
interest earned by banks reduces, while the bank still has been used as it reflects the lending rate of banks.
to pay interest on deposits [5]. The profitability of a bank There are very few studies that cover current phase
increases with increase in net interest earning. of NPAs with the revised definition while analysing the
NPAs and profitability in Indian banks. The present study
Capital adequacy not only covers the recent phase of NPAs crisis, but also
High capital reserve requirement leads to higher profit- covers the time period with revised or new definition of
ability for banks because of lower costs of financial risk NPAs. The definition of NPAs in the present study fol-
for banks. Lower financial risks attract higher deposits lows uniformity.
and boost the banking busies, thereby leading to higher
rate of profit. Several studies have found a positive rela- Method
tion between capital and profitability of banks [1, 6, 11, Data
19] (Harbi 2019). We have used Tier 1 capital ratio as In this study, we have drawn a sample of 39 sched-
prescribed by the Basel Committee as the variable for uled commercial banks, out of which 20 are Pub-
capital adequacy. lic sector Banks (PSBs) and 19 are domestic private
banks. As per the recent data, these 39 banks consti-
Operating costs tute more than 90 percent of the banking operation
It is the total amount of wages and salaries of bank in terms of assets, and close to 95 percent in terms of
employees and the cost of running branch office facili- deposits and credit disbursement in India. In case of
ties. Higher the operating costs, lower will be the profits. Public Sector Banks (PSBs), the overall management
Das and Uppal F utur Bus J 2021, 7(1):53 Page 4 of 9

responsibility lies with the Government, as it remains capital adequacy. The study has used the following mac-
the majority stakeholder. The PSBs are governed by spe- roeconomic predictors of bank profitability—economic
cific acts (banking acts) passed by the parliament. On growth, inflation and interest rate to estimate the deter-
the other side, the private banks are registered under the minants of profitability.
Companies Act and governed as per that act. Their man-
agement lies with the majority promoters or sharehold- Model
ers. In terms of NPA volume, it is largely the PSBs and To understand how NPAs impact the profitability, we
some private banks that have been badly affected by the have estimated the determinants of profitability of Indian
NPA crisis. Few small private banks were dropped from scheduled commercial banks. We have employed the
the analysis due to unavailability of data. The time period panel data estimation procedure to estimate the factors
of the study is from 2005 to 2019. The period of the study that have affected the profitability of banks in India. The
has been chosen as the definition of NPA underwent following functional relationship has been employed to
a change in 2004, and the NPA data from 2005 onward analyse the determinants of profitability.
follow uniformity with the new definition. Annual data
profitabilityi,t = β0 + β1 Non-performing advances i,t
for the sample of 39 banks was collected from a Reserve
Bank of India (RBI) publication—Statistical Tables Relat- + β2 depositsi,t
ing to Banks in India. The bank specific determinates or + β3 non-interest incomei,t
factors that potentially explain the profitability of banks + β4 interest incomei,t
were obtained the above report. The data for macroeco-
+ β5 operational efficiencyi,t
nomic variables were collected from the Handbook of
Statistics on Indian Economy—a publication of the RBI. + β6 capital adequacyi,t
+ β7 economic growtht
Variables + β8 inflation ratet
In this study, we have estimated the determinants of prof- + β9 interest ratet + εi,t
itability of Indian Scheduled Commercial Banks. The (1)
dependent variable is profitability, which is determined
where i = bank, 1,….0.39, and t = time, 1,….,15. εi,t is the
by a set of bank specific and macroeconomic factors
error term.
(Table 1). In the study, the Return on Assets (ROA) has
In the above equation, six bank specific factors and
been used as the variable for profitability. In literature,
three macro-economic factors combined determine the
the ROA is widely used as indicator or proxy for bank
profitability of a bank. In the paper, we have employed
profitability. It is an appropriate indicator of profitabil-
both the fixed and random effect approach to estimate
ity, as it measures the earnings of a bank in relative to its
the determinants of bank profitability. By using fixed
total assets. Therefore, it has been used as the depend-
effect (FE) model, the impact of variables those are time
ent variable. We have used the following bank specific
variant can be analysed. The FE estimation also con-
explanatory variables like Net NPA, total deposit, interest
trols for all time invariant heterogeneity among the
income, non-interest income, operational efficiency and
sample banks. It therefore is likely to produce unbiased

Table 1 Description of variables used in the study

Notation Variable Description Expected effect

Dependent variable Profitability Ratio of Net Income to Total Assets (%)

ROA
NNPA Net Non-Performing Assets Ratio of Net NPA to Net Advances (%) Negative
lnTD Total deposit Natural Logarithm of Total Deposit Positive
NII Non-Interest Income Ratio of Net Interest Income to Total Income (%) Positive
II Interest Income Net Interest Margin (%) Positive
OCTII Operating Cost Ratio of Operating Cost to Total Interest Income (%) Negative
CapT1 Capital Adequacy Tier 1 capital as per Basel norm (%) Positive
GDPGr GDP growth rate Annual Economic Growth rate (%) Positive
INF Inflation Annual rate of Inflation (%) Positive
IR Interest rate Annual Average Repo Rate (%) Positive
Das and Uppal F utur Bus J 2021, 7(1):53 Page 5 of 9

coefficient estimates due to omitted time invariant char- Table 2 Summary statistics of the dependent and explanatory
acteristics [31]. The general form of the fixed effects variables
model can be expressed in the following equation [32]. Variable Obs Mean SD Min Max
Pi,t = C + βXi,t + µi + ui,t (2) ROA 585 0.65 0.96 − 5.49 2.13
NNPA 585 2.41 2.72 0.01 16.69
In Eq. (2), the dependent variable ‘profitability’ is Pi,t
lnTD 585 4.84 0.62 2.82 6.46
for i-th bank and t-th year. The dependent variable Pi,t is
NII 585 1.17 0.46 0.16 3.57
determined by a set of exogenous regressor that includes
II 585 2.70 0.71 0.23 5.61
both the bank specific and macroeconomic variables, Xi,t ,
CAPT1 585 10.27 4.12 4.88 55.93
for i-th bank and t-th year; and βs are model parameters.
OCTII 585 0.24 0.08 0.11 1.33
Beta value in regression is the estimated coefficients of
GDPGr 585 6.80 1.49 3.09 8.50
the independent or explanatory variables. It indicates
INF 585 6.01 2.57 2.28 10.53
a change in the dependent variable as a result of a unit
IR 585 6.82 0.93 5.08 8.00
change in explanatory variables keeping other independ-
ent or explanatory variables constant. The unobserved
individual bank effect is µi , and the random error is, ui,t.
Unlike the fixed effects model, in the random effects error is ui,t . It is assumed that the set of explanatory vari-
(RE) model, it is assumed that the error term is uncor- ables is uncorrelated with the error term ui,t , and the
related with the explanatory variables. It allows the time error term is normally distributed, ui,t~N(0,σu2), where σu2
invariant variables to act as similar to the predictors in is > 0.
the model. The benefit of RE is that the inferences can be We have estimated the following random effect (RE)
generalised, beyond the sample drawn in a model [31]. model to analyse the determinants of profitability in
Indian scheduled commercial banks.
ROAi,t = C+β1 NNPAi,t +β2 TDi,t +β3 NIIi,t + β4 IIi,t + β5 OCTIIi,t + β6 CapT1i,t + β7 GDPGri,t + β8 INFi,t + β9 IRi,t + µ + ui,t +εi,t
(5)

The general form of the RE model can be expressed in the Results

following equation [32]. The descriptive statistics of the variables that has been
used in the estimation of determinants of profitability is
Pi,t = C + βXi,t + µ + ui,t + εi,t (3) presented in Table 2. The descriptive statistics of both the
In Eq. (3), the random error, εi,t is with in entity error dependent and explanatory variables for the time period
term and ui,t is between entity error term. µ is the bank between 2005 and 2019 is presented in the form of mean,
specific random effect. Random effect model assumes standard deviation, minimum and maximum. The results
that the unobservable individual-specific effects (unob- show that the return on profitability (ROA) ranges from
served heterogeneity) are distributed independently − 5.49 to 2.13, with a mean ROA value of 0.65. Similarly,
of the explanatory variables or independent variables. the minimum and maximum values of the explanatory
More clearly, it assumes that the unobserved heterogene- variables range low to high. The mean and standard devi-
ity is uncorrelated with each explanatory variable across ation values of the variables suggest that there is variation
in all time period. Then, if the random effect model is between the two.
significant, it indicates that the unobserved individual The correlation matrix with correlation coefficients
(cross-sectional) effects are uncorrelated with all the of the variables used is presented in Table 3. The results
explanatory variables across all time-period. suggest that there is no multicollinearity problem in the
The following fixed effects (FE) model has been esti- data. The results show a negative association of ROA
mated to analyse the determinants of profitability. with NNPA and CapT1. The rest of the explanatory vari-

ROAi,t = C+β1 NNPAi,t +β2 TDi,t +β3 NIIi,t + β4 IIi,t + β5 OCTIIi,t + β6 CapT1i,t + β7 GDPGri,t + β8 INFi,t + β9 IRi,t + µi +ui,t (4)

where i = bank, 1,….0.39, and t = time, 1,….,15. ables exhibit positive association with ROA.
In Eq. (4), the dependent variable is ROAi,t . It is deter- We have estimated both the fixed effect (Eq. 4) and
mined by a set of exogenous regressors that includes random effect (Eq. 5) models to analyse the determi-
both the bank specific and macroeconomic variables. nants of profitability in Indian scheduled commercial
The unobserved individual bank effect is µi , and random banks. The estimation result of the FE model shows
Das and Uppal F utur Bus J 2021, 7(1):53 Page 6 of 9

Table 3 Correlation matrix

ROA NNPA lnTD NII CapT1 OCTII GDPGr INF IR II

ROA 1.000
NNPA − 0.770 1.000
lnTD − 0.099 0.264 1.000
NII 0.373 − 0.195 − 0.019 1.000
CapT1 0.277 − 0.205 − 0.250 0.162 1.000
OCTII − 0.093 − 0.025 − 0.350 0.388 0.178 1.000
GDPGr 0.050 0.015 − 0.075 0.021 − 0.074 0.064 1.000
INF 0.357 − 0.458 − 0.307 0.083 0.003 0.050 − 0.169 1.000
IR 0.215 − 0.265 − 0.031 − 0.146 − 0.033 − 0.130 − 0.388 0.128 1.000
II 0.516 − 0.399 − 0.206 0.327 0.411 0.319 0.018 0.089 0.072 1.000

Table 4 Determinants of bank profitability: panel regression, Table 5 Hausman test

time period: 2005–2019
Chi-Sq. statistics Chi-Sq. d.f Prob
Variables Fixed effect model Random effect
model 23.7 20 0.255

Dependent variable: Coefficient SE Coefficient SE

ROA

Explanatory variables
(ROA). The estimates are found to be statically signifi-
NNPA − 0.2136*** 0.0258 − 0.2083*** 0.0207
cant. Ratio of operating cost to interest income (OCTII)
lnTD 0.0978 0.3103 0.1640*** 0.0505
shows negative relationship with profitability (ROA).
NII 0.4911*** 0.1051 0.5266*** 0.0740
The other macroeconomic variables like rate of infla-
II 0.2687*** 0.0866 0.3097*** 0.0635
tion and interest rate show negative and positive asso-
CAPT1 0.0282*** 0.0092 0.0291*** 0.0097
ciations, respectively. However, their association is not
statistically significant.
OCTII − 2.9788** 1.2694 − 3.3055*** 1.1504
The regression estimates of the RE model also give
GDPGr 0.5507*** 0.1737 0.5126*** 0.1629
a similar result (Table 3). NPAs and operating cost
INF − 0.4228 0.4191 − 0.3160 0.2167
(OCTII) are negatively associated with the rate of
IR 1.3884 1.2767 1.0733 0.7345
profit (ROA). Their relationship is statistically signifi-
C − 10.5673 5.8362 − 9.2618 4.5848
cant. On the other side, deposit (lnTD), non-interest
Number of observations 585 585
income (NII), interest income (II), capital adequacy
Number of Banks 39 39
(CAPT1) and GDP growth (GDPGr) exhibit positive
R-Square 0.735 0.734
association with profitability (ROA). Their associa-
Prob [F Statistics] 0 0
tion is statistically significant. The other two macro-
***p < 0.001; **p < 0.05; *p < 0.01
economic explanatory variables, the rate of inflation
and interest rate exhibit negative and positive asso-
ciations, respectively. While total deposit was found
that there is an inverse relationship between the rate to be significant in RE, it is found to be insignificant
of profit (ROA) and non-performing loans (NNPA), in FE model. In order to arrive at an appropriate test
and the association is statistically significant (Table 4). between FE and RE, the Hausman test was conducted.
Non-interest income (NII), interest income (II), capi- The results of Hausman test suggest that the RE esti-
tal adequacy (CAPT1) and GDP growth (GDPGr) are mate will be appropriate for the sample as the ‘p’ value
found to be positively associated with the rate of profit is greater than 0.05 (Table 5).
Das and Uppal F utur Bus J 2021, 7(1):53 Page 7 of 9

Discussion Conclusion
In this paper, we have examined the impact of NPAs The paper has empirically estimated the factors that deter-
on the profitability of Indian banks. Using set of bank mine the profitability of Indian scheduled commercial
specific and macroeconomic variables, we have esti- banks, in order to understand the relationship between
mated the determinants of profitability of 39 commer- increasing non-performing advances and the rate of profit.
cial banks in India. The estimation result suggests that The determinants of profitability have been estimated by
growing incidence of NPA is likely to reduce the prof- taking a set of bank specific and macroeconomic explana-
itability of the banks considerably. Results also suggest tory variables. From the panel data estimation of 39 Pub-
that increase in operating cost has negative impact on lic Sector and private banks, we found that the increase
the profitability in Indian banks. The negative asso- in non-performing advances has negative impact on the
ciation between profitability (ROA) and NPA (NNPA); rate of profit. Operating cost is also found to be negatively
and profitability (ROA) and operating cost (OCTII) is associated with profitability. The estimates of both the FE
statistically significant. The results show that there is and RE model suggest that non-interest income, interest
a positive relationship between profitability (ROA), income, capital adequacy and GDP growth rate have posi-
and interest earning (II) and non-interest earnings tively contributed to the rate of profit of the Indian banks.
(NII). Their association is found to be statistically sig- Given that, banks to a large extent depend on the perfor-
nificant. The results further show that the volume of mance of their loan assets as a critical source of income
deposit (lnTD) is positively associated with the prof- and profit, the rising NPAs is a cause of concern. It on the
itability (ROA). As financial intermediaries, commer- one hand reduces their interest earning and on the other
cial banks largely relay on interest earnings as their side also affects their future deposits and increases their
major source of income. In order to boost up their operating cost as the cost of recovery of NPAs will go up.
interest earnings, the banks must reduce their NPA The study suggests that the banks must reduce their NPAs
volumes. The result suggests that Indian banks must and operating cost to improve their profitability.
reduce NPAs and operating cost in order to enhance
their profitability. Limitation of the study and future research
The findings of the empirical estimation are simi- avenues
lar to the findings of the studies by Kannan et al. [16], The findings of the study are based on a sample of banks
Sensarma and Ghosh [26], and Sinha and Sakshi [28]. that mostly covers the PSBs and the private banks, cover-
A study by Kannan et al. [16], using data for 86 Indian ing the time period from 2005 to 2019. Though data for
banks, for the period from 1995–96 to 1999–2000 the year 2020 are available, it could not be incorporated
found that banks with higher NPAs have relatively lower due to recent bank mergers in India. Between 2020 and
profit margins. A study by Sensarma and Ghosh [26] of 2021, several mergers took place within the Public Sec-
Indian commercial banks, for the period from 1997– tor Banks (PSBs). Post-merger, the number of PSBs has
98 to 2000–01, reported that a rise in NPA adversely declined from 20 to 12. While it would be interesting to
affects the interest margins for banks and hence reduces include the mergers into the empirical analysis, however
bank profitability. Similarly, Sinha and Sakshi [28], one year is a too short time period to make any mean-
in their study of 42 Indian commercial banks for the ingful conclusion. The effect of merger in the analysis of
period from 2000 to 2013, found that higher credit risk, NAPs and profitability of banks can be studied in future,
as measured by provision non-performing assets, nega- with the availability of data for a longer time period.
tively impacts bank profitability. Analysing NPAs in 46
Indian commercial banks from 2007 to 2014, Bawa et al.
[5] found a negative relationship between NPAs and Appendix
return on assets. See Table 6.
Das and Uppal F utur Bus J 2021, 7(1):53 Page 8 of 9

Table 6 List of banks studied

S. no. Name of bank Category S. no. Name of Bank Category

1 ALLAHABAD BANK PSB 21 AXIS BANK Private

2 ANDHRA BANK PSB 22 CATHOLIC SYRIAN BANK LTD Private
3 BANK OF BARODA PSB 23 CITY UNION BANK LIMITED Private
4 BANK OF INDIA PSB 24 DCB BANK LIMITED Private
5 BANK OF MAHARASHTRA​ PSB 25 THE DHANALAKSHMI BANK LTD Private
6 CANARA BANK PSB 26 FEDERAL BANK Private
7 CENTRAL BANK OF INDIA PSB 27 HDFC BANK Private
8 CORPORATION BANK PSB 28 ICICI BANK Private
9 DENA BANK PSB 29 IDBI BANK LIMITED Private
10 INDIAN BANK PSB 30 INDUSIND BANK Private
11 INDIAN OVERSEAS BANK PSB 31 JAMMU & KASHMIR BANK LTD Private
12 ORIENTAL BANK OF COMMERCE PSB 32 KARNATAKA BANK LTD Private
13 PUNJAB AND SIND BANK PSB 33 KARUR VYSYA BANK Private
14 PUNJAB NATIONAL BANK PSB 34 KOTAK MAHINDRA BANK LTD Private
15 SYNDICATE BANK PSB 35 LAKSHMI VILAS BANK Private
16 UCO BANK PSB 36 RBL Private
17 UNION BANK OF INDIA PSB 37 SOUTH INDIAN BANK Private
18 UNITED BANK OF INDIA PSB 38 TAMILNAD MERCANTILE BANK LTD Private
19 VIJAYA BANK PSB 39 YES BANK LTD Private
20 STATE BANK OF INDIA & ITS ASSOCIATES PSB

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