NET NPA and Profit Correlation in Cooperative Banks: Case Study of Ahmedabad and Kalupur Co-Op. Banks

Abstract

This research paper investigates the relationship between Net Non-Performing Assets (Net NPA) and Net Profit in two prominent cooperative banks: The Ahmedabad Mercantile Co-Operative Bank Ltd. and The Kalupur Commercial Co-Operative Bank Ltd. The study spans six financial years, from 2017-18 to 2022-23, analyzing financial data to uncover an intriguing pattern where an increase in Net NPAs is accompanied by a rise in Net Profits. To assess the strength of this relationship, Pearson correlation analysis was conducted, resulting in correlation coefficients of 0.9996 and 0.95 for the respective banks. These findings indicate a strong to near-perfect positive correlation between Net NPA and Net Profit.

The findings challenge conventional banking norms, where higher NPAs typically erode profitability. Despite increasing asset quality concerns, these banks have managed to sustain and grow their profits. This suggests the presence of effective operational strategies, diversified income streams, and robust cost management practices that mitigate the adverse effects of rising NPAs.

However, while profitability growth reflects strong management practices, the increasing NPAs highlight the potential risk to long-term financial health. The paper underscores the importance of investigating underlying profit drivers and enhancing credit risk management to sustain profitability while addressing asset quality issues (Mahida R., 2024).

Recommendations include implementing stronger NPA recovery mechanisms, diversifying lending portfolios, and improving monitoring frameworks. This dual approach aims to ensure that profits continue to grow while simultaneously reducing NPAs, thereby enhancing the overall resilience and sustainability of the banks. This study provides valuable insights for cooperative banks navigating the complexities of profit growth amid asset quality challenges.