The business of banking is the acceptance of deposits and granting of loan. There main source of income is the interest they receive from various loans and advances. A certain margin is maintained between the interest charged and the interest paid. It is evident that the major chunk of revenue is generated from interest received from loans granted. If the loans accounts start turning into NPA’s thus are not generating any income then the profitability of the bank starts to fall. Yet again, if the bank is not able to recover any loans given to the borrowers then the liquidity position of the bank also shall be widely affected. This will in turn result in the customers losing faith on the bank credibility. NPA’s is draining out the strength from our economy as it is destroying the profitability and the liquidity position of the banks which are the pillars for a strong economy. The Government of India, RBI and the banks should ensure the follow of such strict procedures not only at the time of issue of the loans but also regular follow up, scrutiny’s and forensic audit should be done to prevent assets turning into NPA’s.

KEYWORDS: Public Sector Banks, Private Sector Banks, Non- Performing Asset.