In a fast changing banking environment of today the very survival of a banking organization depends on level of the income generated through optimum use of assets after paying the cost of funds for acquiring them and other administrative costs involved therein. Once the assets cease to contribute the income, they are termed as Non-Performing Assets, which not only have cost of funds involved but also require to be operated as per prudential norms. One of the major problems being faced by banks and financial institutions in India is that of bad debts termed as “Non-­Performing Assets” (NPA). There are many reasons for the sorry state of affairs and major among them are 1) Political interference, 2) Poor low enforcement, 3) Archaic laws and procedures, 4) Corruptions at various levels and competition in various banking institution, 5) Flow of Funds.

KEYWORDS: Banking Environment, Cost of Funds, Administrative Costs, Non-Performing Assets.