How does NPA affect the balance sheet of a bank?

A high ratio of Non-Performing Assets (NPA) in the balance sheet of the banks affects the financial stability of the bank. It negatively impacts the ability of the banks to provide credit. It shakes the confidence of the lenders, depositors, investors etc. You can read about the Non Performing Assets (NPA) – Reasons, Classification, Impact, and Measures to Control NPA in the given link.

Further readings:

1. RBI – Reserve Bank of India [UPSC Indian Economy Notes]
2. Bad Banks – Idea Proposed by Indian Banking Association (IBA) Due to COVID-19