- Bank Balance Sheet:
- NPAs are non-earning assets, reducing bank profitability.
- Banks must make provisions for potential losses, eroding capital.
- This reduces the bank’s Capital Adequacy Ratio (CAR).
- It limits the bank’s ability to give new loans.
- Wider Economy:
- Reduced lending by banks slows down investment.
- This can hamper economic growth.
- It can lead to a credit crunch.
- It can cause financial instability if many banks are affected.