Non-Performing Assets (NPAs): Evolution, Impact and Institutional Reforms

The issue of Non-Performing Assets (NPAs) has emerged as one of the most critical challenges confronting the Indian banking sector. This paper examines the extent, causes, and implications of NPAs on the financial health of Indian banks, emphasising their impact on profitability, liquidity, and capital adequacy. Using secondary data drawn from the Reserve Bank of India (RBI) reports, Ministry of Finance, Indian Banks’ Association (IBA) publications, and studies, this research provides a comprehensive evaluation of the NPA crisis and its macroeconomic consequences. The findings reveal that NPAs significantly weaken the earning potential of banks, restrict their lending capacity, and increase provisioning burdens, thereby deteriorating overall asset quality. The evolution of NPAs from the post-liberalisation era to the contemporary financial landscape shows that economic slowdowns, weak credit appraisal mechanisms, political interference, and governance inefficiencies have compounded the crisis. While government initiatives such as the SARFAESI Act (2002), Insolvency and Bankruptcy Code (2016), and RBI’s Asset Quality Review have contributed to some recovery and accountability, persistent challenges remain due to structural inefficiencies and delayed resolution processes. The study concludes that sustainable banking health in India demands continuous monitoring, improved credit discipline, and robust institutional reforms to ensure a balance between credit expansion and risk management.