Role of NPA Provisions in Financial Soundness and Profitability: A study on Primary Co-operative Agricultural and Rural Development Banks in Kollam District, Kerala

Primary Co-operative Agricultural and Rural Development Banks (PCARDBs) means a society has an area of operation confined to a taluk and the principal object of which is to provide long-term credit for agricultural and rural development. One of the dangerous problems faced by co-operative banking is the inability of the borrower to repay their overdue interest and principal, leading to Non-performing Assets (NPA). The presence of NPA had an adverse effect on the profitability and existence of PCARDBs, but they are still surviving with the help of provisions created against NPA. Provisioning means the portion of income set aside by the bank to meet contingent losses that may arise in the event of non-recovery of loans. By analysing the data collected from the financial statements of the six PCARDBs in Kollam district, it can be understood that the growth in NPA involves the necessity of provisions which bring down the overall profitability of the bank. But if the banks are capable to create such provisions from net profit, it helps to maintain the financial soundness of banks. The study is based on the data collected from financial statements of six PCARDBs in Kollam District and the results show higher provisioning for overdue which results net loss in the financial statements of banks