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Research About Npa and Profitability

In: Business and Management

Submitted By dip001
Words 319
Pages 2
NPA’s Relation with (Interest rates)
RBI has few policies by which they maintain growth and control inflation in Indian economy. One of these tools is repo rate. An increase in the repo rate will make the borrowings more costly and it attempts to decrease the aggregate demand. Rising lending rates will also make the existing loans costly and thus adds to the pressure on the borrowers’ ability to service the debt. These accumulated debt leads to the massive NPA issue in nationalized banks in India.
Net Worth relation with NPAs
Net worth gets depleted by annual operating losses or a substantial decrease in asset values relative to liabilities. Banks are required to categorize non-performing assets further into three units on the period for which the asset has remained non-performing and the reliability of the dues:
(i) Sub-standard Assets,
(ii) Doubtful Assets, and
(iii) Loss Assets.
According to RBI directives, all banks are required to maintain NPAs both on gross and net basis. It is usually expressed in percentage term.
NPAs= [(Gross or Net NPAs) / Total Advances]*100.

NPA’s Relation with Capital Adequacy Ratio(CRAR)
Capital adequacy ratio is used to protect depositors and promote the stability and efficiency of financial systems around the world. Correlation Analysis is one of the major objectives of the financial reform agenda was to securitization of the banking capitals by means of capital adequacy norms so that the magnitudes of NPA as a proportion to total deposit (NPA/D) will fall and as a result of that the overall C-D(Credit to deposit) ratio will rise.High level of CRAR to provide sufficient cushion for any unexpected losses, in relation to capital adequacy requirements.

NPA’s Relation with efficiency Lack of operational efficiency in bank to handle the loan portfolio affects profitability, liquidity and solvency position of nationalized

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