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The demonetization decision by the government of India affected almost all service sectors of Indian economy, out of which the banking sectors were affected the most. Due to demonetization bulk amount of old currency notes of INR 500 and INR 1000 were deposited to banks; that not only increased the capital base of banks, but those un-used cash boosted the liability of loan disbursement. Again the reducing interest rates, providing account opening facility and issuing loan to the depositors by banks without judging their repayment ability resulted a chance of increasing number of defaulters and the value of nonperforming assets. Considering the scenario the present research work tried to focus on the impact of demonetization towards the movement of nonperforming assets of Indian banks. A multivariate regression analysis was performed by considering income, expenditure and net profit ratio as internal and the percentage change of India’s GDP, inflation and foreign exchange rate as external independent variables towards the net nonperforming assets changes of Indian public and private sector banks as dependent variable from financial year 2016-17 to 2018-19. Though the outcome of the study revealed that demonetization helped to reduce the nonperforming asset values in short run but in long run it would stimulate the growth of nonperforming assets.