Financial Distress and Financial Sustainability in Indian Commercial Banks: A descriptive Review of Gross Non-Performing Assets (GNPA) and Return on Assets (ROA) as major determinants

This descriptive review highlights that Gross Non-Performing Assets (GNPA) and Return on Assets (ROA) are the two most influential determinants of financial distress and financial sustainability in Indian commercial banks. The reviewed literature consistently demonstrates that rising GNPA levels adversely affect banks by increasing credit risk, provisioning requirements, and operational costs, thereby reducing profitability and weakening overall financial performance. In contrast, a higher ROA reflects efficient asset utilization, sound managerial practices, and stronger profitability, making it an important indicator of long-term financial sustainability. The review further reveals that financial sustainability depends not only on profitability but also on a combination of factors including capital adequacy, liquidity management, asset quality, effective risk management, and a supportive macroeconomic and regulatory environment. Banks that maintain lower GNPA levels, higher ROA, adequate capital buffers, and efficient liquidity management are better positioned to withstand economic uncertainties and sustain long-term growth. Regulatory initiatives such as the Reserve Bank of India's Asset Quality Review (AQR), the Insolvency and Bankruptcy Code (IBC), and Prompt Corrective Action (PCA) framework have contributed significantly to improving asset quality and strengthening the resilience of the Indian banking sector. The literature also indicates that prudent lending practices, robust credit appraisal systems, continuous monitoring of borrowers, timely loan recovery mechanisms, and strong corporate governance are essential for reducing NPAs and improving financial performance. Moreover, maintaining adequate capital and effective liquidity management enables banks to absorb unexpected losses while ensuring operational continuity and depositor confidence. These factors collectively enhance profitability, improve ROA, and promote sustainable banking operations. The study concludes that the long-term sustainability of Indian commercial banks depends on achieving an appropriate balance between asset quality and profitability. Effective management of GNPA, together with continuous improvement in ROA, should remain the primary strategic objective for bank management and policymakers. Strengthening credit risk management, improving operational efficiency, adopting advanced risk assessment practices, and ensuring strict regulatory compliance will not only minimize financial distress but also enhance the resilience, competitiveness, and sustainable growth of the Indian banking sector in the evolving financial environment.

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