Strategic Lending Reallocation Under Disaster-Induced Stress: A Portfolio Optimization Approach to NPA Mitigation

Systematic surges of Non-Performing Assets (NPAs) as a result of natural disasters are a threat to the financial stability of regions. The Indian banks have no quantitative models to re-balance lending patterns after disaster despite stringent regulatory NPA levels. We suggest a modern portfolio theory (MPT)-based optimization model that uses expected interest income as the amount to be called as the return and the expected NPA rate as the risk. The non-linear constrained multi-objective maximization is defined as maximizing the portfolio returns with regulatory NPA targets. Our model (used on a synthetic postdisaster portfolio with 36.81 % initial NPV) brings this down to 3.09 % (within 4.5 % target) and 10.95 % portfolio return, with strategic reallocation to secured assets and risk-reflective pricing. The scenario test proves resilience in different recovery rates. This paradigm gives banks and regulators an active, quantitative tool of strategic portfolio development, beyond the reactive loss mitigation to provide financial resilience at critical recovery stages.