Effect of RBI’s Monetary Policy on NPAS and Profitability of Scheduled Commercial Banks in India

ABSTRACT: The banking sector plays a crucial role in the economic development of India, and its performance is significantly influenced by the monetary policy decisions of the Reserve Bank of India (RBI). This study aims to examine the impact of RBI’s monetary policy on the profitability and Non-Performing Assets (NPAs) of scheduled commercial banks in India. The research focuses on understanding how changes in policy rates affect lending behavior, asset quality, and overall financial performance of banks. Primary data were collected from bank officials through a structured questionnaire, and appropriate statistical tools, including the chi-square test, were used for analysis. The findings reveal that a majority of respondents perceive a strong relationship between monetary policy changes and bank profitability, as well as between policy rates and NPAs. The study also highlights operational challenges faced by banks in effectively transmitting monetary policy decisions, particularly during periods of monetary tightening. Additionally, the research emphasizes the importance of risk management practices, technological efficiency, and staff training in mitigating the adverse effects of policy changes. The chi-square test results confirm that RBI’s monetary policy has a significant effect on both profitability and asset quality of banks, leading to the acceptance of the alternative hypothesis. The study concludes that effective policy transmission, proactive risk management, and supportive regulatory measures are essential to ensure financial stability and sustainable performance of the Indian banking sector. KEYWORDS: Monetary Policy, RBI, Bank Profitability, Non-Performing Assets, Scheduled Commercial Banks