When the loan borrower fails to make periodical payment of interest or principal or both then such loan borrower becomes the loan defaulter. For banks, loans are such assets which generate income considered as performing assets and when such loans don’t generate income become the non-performing assets. Banks want to have low NPA as much as possible so that their profitability doesn’t get affected to a large extent. Bank performs a very vital role in the economic process and development of a country. The purpose of the study is to recognize the source of loan default on the functioning of the bank and what steps could be taken to lower the cases of loan defaults. To study the impact of loan defaults on banks profitability and to find out ways to lessen loan defaults. Data collected for this study is mainly based on secondary statistics such as journals, newspaper, internet, magazines & books.