Impact Of Non-Performing Assets On The Profitability Of Commercial Banks: A Comparative Study Between Public And Private Sectors In Agra Division

Abstract

Non-performing assets (NPAs) constitute one of the most important indicators of asset quality, credit-risk exposure and financial resilience in commercial banking. Although the Indian banking sector has recorded a substantial improvement in asset quality in recent years, differences in NPA exposure and profitability continue to exist between public-sector and private-sector banks. The present study examines the relationship between non-performing assets and profitability and compares the strength of this relationship across public- and private-sector commercial banks, with Agra Division of Uttar Pradesh providing the geographical and managerial setting of the study. Agra Division comprises Agra, Firozabad, Mathura and Mainpuri districts. The empirical analysis uses recent bank-group financial statistics for the five financial years ending March 2021 to March 2025, supported by Reserve Bank of India statistics, regulatory reports, annual banking reports and recent empirical literature. The principal variables are the gross non-performing asset ratio (GNPA) and return on assets (ROA), supplemented conceptually by net NPA, provisioning, capital adequacy, credit growth, operating efficiency and recovery mechanisms. Descriptive statistics, Pearson correlation, Welch’s independent-samples t-test, effect-size analysis and ordinary least-squares regression with heteroskedasticity-robust standard errors are employed.

The results establish a strong adverse relationship between NPAs and profitability. Public-sector banks recorded an average GNPA ratio of 5.50 per cent during the five-year analytical period compared with 2.94 per cent for private-sector banks. Their respective mean ROA values were 0.74 per cent and 1.54 per cent. The public-sector GNPA-ROA correlation was −0.9995, while the corresponding coefficient for private-sector banks was −0.9529. In the pooled regression, a one-percentage-point increase in GNPA was associated with an estimated 0.143 percentage-point decline in ROA after controlling for ownership category. The model explained approximately 96.7 per cent of observed ROA variation. The public-private profitability difference was statistically significant and economically large. The study further observes that recent asset-quality improvement has been particularly strong among public-sector banks: by March 2025, the GNPA ratio had declined to approximately 2.6 per cent for public-sector banks and 1.8 per cent for private-sector banks, while ROA stood at approximately 1.1 per cent and 1.7 per cent, respectively.

The findings support the proposition that improved underwriting discipline, early-warning systems, borrower monitoring, recovery effectiveness, adequate provisioning, portfolio diversification and technology-enabled credit-risk management can translate asset-quality improvement into sustainable profitability. For banks operating in Agra Division, the study recommends district-sensitive credit monitoring, differentiated MSME and agricultural risk frameworks, portfolio-level early-warning dashboards, faster stressed-account intervention and branch-level accountability for slippages, recoveries and risk-adjusted profitability. The paper contributes to contemporary banking research by connecting the NPA-profitability relationship with ownership structure, recent post-clean-up banking performance and the operational context of a commercially and agriculturally diverse regional market.