The banking industry faces a severe obstacle in the form of nonperforming assets (NPAs) in priority sector lending. Non-repayment of loans by borrowers has led to a large growth in the amount of non-performing assets (NPAs), despite the government's focus on lending to priority sectors. Many reasons, including insufficient credit assessment, a lack of financial literacy among borrowers, and an economic slowdown, contribute to the problem. In addition, the effects of natural disasters such as floods and droughts on the agriculture sector have also contributed to the increase in NPAs in the priority sector. Coimbatore district, an important hub for small and medium companies (SMEs) and agriculture, is particularly afflicted. The failure of these industries to repay loans has placed a huge strain on the district's financial system, negatively impacting the economy as a whole. In addition, there is a need for increased financial literacy among borrowers as well as more effective credit counselling to ensure that borrowers comprehend their obligations and repayment schedules. This study focuses on nonperforming assets (NPAs) in public and private banks within the district of Coimbatore. The research is based on relevant secondary data from studies on potential related plans by NABARD and the State Government's Annual Credit Plan for District Banks for the years 2022–2023. In addition, the opinions of the 50 bank workers selected to work on the district of Coimbatore's Assessment of Repayment Capability were analysed. The study highlights the need for banks to adopt a more proactive approach towards lending and recovery in the priority sector. This can help in promoting economic development in the district and improving the overall health of the banking sector.