ANALYZING ECONOMIC FACTORS' INFLUENCE ON NON-PERFORMING ASSETS IN PUBLIC BANKS

Abstract

The research investigates the impact of economic factors on non-performing assets (NPAs) in nationalized banks, focusing on key economic indicators such as GDP growth rate, inflation rate, interest rate, and unemployment rate. A comprehensive quantitative analysis is conducted, encompassing correlation and regression analyses, utilizing data from select nationalized banks over a five-year period (2019-2023). The study reveals a significant relationship between economic factors and NPAs, with the strongest correlations identified between NPAs and the unemployment rate and interest rate. A negative correlation between GDP growth rate and NPAs signifies that a thriving economy contributes to lower NPAs, as borrowers have increased capacity to repay loans. Conversely, a positive correlation is observed between inflation rate and NPAs, emphasizing how higher inflation hampers borrowers' ability to meet loan obligations. Furthermore, higher interest rates are positively correlated with increased NPAs, as they elevate the cost of loan repayment, impacting borrower affordability. The positive correlation between unemployment rate and NPAs underscores the vulnerability of unemployed borrowers to loan default. The study's findings hold implications for both policy makers and bank management. Policy makers can employ these insights to design economic policies that foster growth and low unemployment, while bank management can refine lending practices and enhance risk management to mitigate NPAs. This research methodology aligns with ethical guidelines, respects data privacy, and adheres to statistical standards, and offers a foundation for future research in the realm of nationalized banks and NPAs.

Keywords: Nationalized banks, Non-Performing Assets, Economic Factors, GDP growth rate, Inflation Rate, Interest Rate and Unemployment Rate.