Determinants of Non Performing Assets: An Empirical study of Public Sector Banks in India ABSTRACT UNNAYAN : International Bulletin of Management and Economics Volume - VII | July 2017 1 Dr C K Goyal Professor & Head, IBMR IPS Academy, Indore Gagan Bhati Assistant Professor IBMR, IPS Academy, Indore Non Performing Assets (NPA) is a serious cause of concern for the entire banking system of India. It is a virus badly affecting banking system of the nation particularly Public Sector Banks in India. Several reasons and factors are there behind the problem of mounting NPA in Public Sector Banks. An effort has been made in this paper to understand the impact of Macroeconomic and bank specific variables on NPA of Indian PSU banks. Macroeconomic variables selected for the purpose of analysis were GDP at factor cost and Exchange rate on the other hand bank specific variables selected for the study were Net Advance, Total deposits and Reserves and surplus. With the help of statistical tools viz. bivariate correlation and linear regression it was found that GDP at factor cost has a positive and significant impact on the level of Net NPA, exchange rate has also positive significant impact on the Net NPA of Indian PSU banks. Selected bank specific variables do have positive and significant impact on the NPA of Public Sector Banks in India. The level and extent of Gross and Net NPA has shown through the bar diagram and trend lines. Problem of NPA has become biggest challenge for the banking system and it is requiring serious attention. INTRODUCTION Banking system plays very important role in the economic development of a nation. A sound and vibrant banking system is essential for mobilization of savings into productive assets and for the better utilization of financial resources with allocation of financial assets. Banks primarily deals in lending activities through which credit is to be extended by the banks and financial institutions to the different sectors of the economy popularly known as priority sector and non-priority sectors. Lending always carries risk, when borrower of the loan is unable to fulfill repayment obligation the loan account turns as NPA. Non Performing Assets (NPA) is one of the serious concerns for banking system of India. NPA adversely affects the profitability of banks and it also renders negative impact on the operational efficiency of banking system. According to the guidelines of Reserve Bank of India loan/advance asset account classified as NPA if the interest/installment remains irregular for more than 90 days. Non Performing Assets do not contribute in the generation of income for the bank. Further due to provisioning requirements it reduces the level of profits in banks and leads to enhance the legal, administrative and recovery cost to the banks. The problem of NPA badly affects the loan portfolio of banks, In India the problem of bad loans is associated with all Schedule commercial banks but the level and extent of NPA is more significant with Public sector banks. Gross NPA of Public sector banks stood at 9.6% on end of March 2016 which amounts to 5608 billion Rupees on the other hand Net NPA remained 6.1% which amounts to 3474 billion Rupees in the same period which is highest in last 8 years. It is alarming for PSU banks in India. Several macroeconomic and bank specific variables are accountable for the problem. In this study the impact of selected variables on NPA of PSU banks has been analyzed. ISSN No. 2349-7165