IMPACT OF ASSET QUALITY ON PROFITABILITY OF URBAN CO-OPERATIVE BANKS IN INDIA A COMPARATIVE STUDY OF 2021–22 AND 2022–23

Abstract

Asset quality and profitability are two central dimensions of banking performance. A co-operative bank may expand its loan portfolio, but the sustainability of such growth depends on whether advances remain productive and generate income. This paper studies the interaction between asset quality and profitability of Urban Co-operative Banks (UCBs) in India through a comparative examination of 2021–22 and 2022– 23. Using secondary data published by the Reserve Bank of India, the study analyses Gross NPAs, Net NPAs, provision coverage, net profit, return on assets (ROA), return on equity (ROE), net interest margin (NIM), capital adequacy and balance-sheet expansion. During 2022–23, gross NPAs of all UCBs declined from ₹32,307 crore to ₹29,210 crore and the GNPA ratio declined from 10.3 per cent to 8.8 per cent. The NNPA ratio declined from 2.9 per cent to 2.1 per cent, while the provision coverage ratio increased from 71.3 per cent to 75.7 per cent. At the same time, net profit after tax increased from ₹2,896 crore to ₹3,090 crore, ROA improved from 0.44 per cent to 0.46 per cent, ROE from 5.10 per cent to 5.15 per cent, and NIM from 2.73 per cent to 2.99 per cent. The results show a contemporaneous improvement in aggregate asset quality and profitability, although the paper does not claim that the former alone caused the latter. The findings support continued emphasis on credit appraisal, recovery, provisioning, governance, internal audit and risk management.