Authors: Mr. Nitin Jayshankar Tiwari
Abstract: Non-performing assets (NPAs) continue to threaten the financial soundness of commercial banks. Elevated NPA levels erode capital buffers, depress profitability, limit banks’ ability to extend new credit, and introduce systemic risks across the financial system. This study assesses the impact of NPAs on financial stability by drawing on theoretical perspectives, empirical findings, and regulatory policy responses. The evidence shows that high NPA ratios weaken liquidity and solvency and undermine market and depositor confidence, creating the risk of prolonged structural instability if left unresolved. Strengthening loan underwriting and monitoring, accelerating recovery and resolution mechanisms, and enhancing regulatory supervision and early-warning systems are critical measures for restoring and preserving banking sector resilience.
