Comparative Analysis of Non-Performing Assets and Their Impact on Financial Performance of Public and Private Sector Banks in Kerala

Abstract

This study examines whether asset quality and profitability differ by ownership among banks operating in Kerala, and whether weaker asset quality is linked to lower profitability. Using a secondary, cross-sectional design for the latest completed financial year, a set of scheduled commercial banks was analysed. Gross non-performing assets, defined as the proportion of impaired advances, and return on assets, defined as net income over average assets, were taken directly from bank disclosures. Sector differences were tested with Welch’s tests, and the asset-quality–profitability link was estimated using Pearson correlation and a simple linear model. All analyses were conducted in EDUSTAT. Private sector banks showed higher profitability than public sector banks, while the gap in gross non-performing assets, though directionally larger for public sector banks, was inconclusive. Across banks, poorer asset quality related strongly and negatively to profitability, consistent with higher credit costs and lost interest income. The narrow scope and unbalanced sample warrant caution, and an annualised quarterly profitability figure for a merged institution may affect comparability. Even so, the evidence supports early risk detection, disciplined provisioning, and timely resolution, and offers a baseline for future multi-year extensions.