IDEAS home Printed from https://ideas.repec.org/a/kap/apfinm/v30y2023i4d10.1007_s10690-023-09397-9.html
   My bibliography  Save this article

How Serious is India’s Nonperforming Assets Crisis? A Structural Satellite Version of the Financial-Macroeconometric Model

Author

Listed:
  • Nithin Mani

    (Indian Institute of Technology Kharagpur)

  • Alok Kumar Mishra

    (University of Hyderabad)

  • Jijin Pandikasala

    (Madras Institute of Development Studies (MIDS), Gandhi Nagar)

Abstract

This paper develops a Structural Satellite version of the Financial-Macroeconometric Model of India (SSFMMI) to examine whether the surge in Nonperforming Assets (NPAs) in Indian Public Sector Banks (PSUs) post-2015 is due to macroeconomic shocks or better classification of loans and cleaning of bank balance sheets. Specifically, the paper analyses the impact of a rainfall shock, domestic food price shock, world oil price shock, fiscal shock, and monetary shock using counterfactual policy simulations and an out-of-sample forecasting framework to validate the impact of these macroeconomic shocks on NPA levels. The paper's outcomes suggest that the late surges in NPAs are not due to macroeconomic shocks and, therefore, that Indian banks are resilient to such shocks. However, the study reveals that the rise in domestic fuel prices and world food prices can cause a surge in NPAs levels.

Suggested Citation

  • Nithin Mani & Alok Kumar Mishra & Jijin Pandikasala, 2023. "How Serious is India’s Nonperforming Assets Crisis? A Structural Satellite Version of the Financial-Macroeconometric Model," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 30(4), pages 761-794, December.
    • Handle: RePEc:kap:apfinm:v:30:y:2023:i:4:d:10.1007_s10690-023-09397-9
    DOI: 10.1007/s10690-023-09397-9
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10690-023-09397-9
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s10690-023-09397-9?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
    2. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
    3. Narcise Amin Rashti & Ebrahim Siami Araghi & Mahdi Shayeste, 2014. "Relationship Between Financial Development and Economic Growth, Evidence from Financial Crisis," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 4(7), pages 930-940.
    4. Singh, Sanjay & Majumdar, S., 2013. "Macro Stress Testing for Indian Banking: VAR Approach," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 48(2), pages 275-296.
    5. Dr. Pradip Kumar Biswas & Ashis Taru Deb, 2004. "Determinants of NPAs in the Indian Public Sector Banks: A Critique of Policy Reforms," The IUP Journal of Bank Management, IUP Publications, vol. 0(3), pages 11-41, August.
    6. Dua, Pami & Kapur, Hema, 2018. "Macro stress testing and resilience assessment of Indian banking," Journal of Policy Modeling, Elsevier, vol. 40(2), pages 452-475.
    7. Singh, Balwant, 2005. "A forecasting and policy simulation oriented small macro-model for the Indian economy," Journal of Policy Modeling, Elsevier, vol. 27(9), pages 1025-1049, December.
    8. Beck, Roland & Jakubik, Petr & Piloiu, Anamaria, 2013. "Non-performing loans: what matters in addition to the economic cycle?," Working Paper Series 1515, European Central Bank.
    9. Sengupta, Rajeswari & Vardhan, Harsh, 2017. "Non-performing assets in Indian Banks: This time it is different," MPRA Paper 81403, University Library of Munich, Germany, revised 16 Sep 2017.
    10. Bruna Škarica, 2013. "Determinants of Non-Performing Loans in Central and Eastern European Countries," EFZG Working Papers Series 1307, Faculty of Economics and Business, University of Zagreb.
    11. Sreejata Banerjee & Divya Murali, 2015. "Stress Test of Banks in India: A VAR Approach," Working Papers 2015-102, Madras School of Economics,Chennai,India.
    12. Niyogi Sinha Roy, Tanima & Bhattacharya, Basabi, 2011. "Macroeconomic Stress Testing and the Resilience of the Indian Banking System: A Focus on Credit Risk," MPRA Paper 30263, University Library of Munich, Germany.
    13. Narcise Amin Rashti & Ebrahim Siami Araghi & Mahdi Shayeste, 2014. "Relationship Between Financial Development and Economic Growth, Evidence from Financial Crisis," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 4(7), pages 930-940, July.
    14. Oliver Hart & John Moore, 1994. "A Theory of Debt Based on the Inalienability of Human Capital," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(4), pages 841-879.
    15. Santosh Kumar Das & Khushboo Uppal, 2021. "NPAs and profitability in Indian banks: an empirical analysis," Future Business Journal, Springer, vol. 7(1), pages 1-9, December.
    16. Pami Dua & Hema Kapur, 2017. "Macro Stress Testing of Indian Bank Groups," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 11(4), pages 375-403, November.
    17. Pesola, Jarmo, 2001. "The role of macroeconomic shocks in banking crises," Bank of Finland Research Discussion Papers 6/2001, Bank of Finland.
    18. Philip Arestis & Georgios Chortareas & Georgios Magkonis, 2015. "The Financial Development And Growth Nexus: A Meta-Analysis," Journal of Economic Surveys, Wiley Blackwell, vol. 29(3), pages 549-565, July.
    19. Swamy, Vighneswara, 2012. "Impact of Macroeconomic and Endogenous Factors on Non-Performing Bank Assets," MPRA Paper 47517, University Library of Munich, Germany.
    20. repec:zbw:bofrdp:2001_006 is not listed on IDEAS
    21. Ghosh, Saibal & Narain, Aditya & Kannan, R, 2001. "Determinants of net interest margin under regulatory requirements: an econometric study," MPRA Paper 33302, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Pallavi Chavan & Leonardo Gambacorta, 2016. "Bank lending and loan quality: the case of India," BIS Working Papers 595, Bank for International Settlements.
    2. Bholat, David & Lastra, Rosa & Markose, Sheri & Miglionico, Andrea & Sen, Kallol, 2016. "Non-performing loans: regulatory and accounting treatments of assets," Bank of England working papers 594, Bank of England.
    3. Qian, Xingwang & Steiner, Andreas, 2017. "International reserves and the maturity of external debt," Journal of International Money and Finance, Elsevier, vol. 73(PB), pages 399-418.
    4. Diamond, Douglas W. & Rajan, Raghuram G., 2001. "Banks, short-term debt and financial crises: theory, policy implications and applications," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 54(1), pages 37-71, June.
    5. Tamim Bayoumi & Giovanni Dell'Ariccia & Karl F Habermeier & Tommaso Mancini Griffoli & Fabian Valencia, 2014. "Monetary Policy in the New Normal," IMF Staff Discussion Notes 14/3, International Monetary Fund.
    6. Olayinka Akinlo & Mofoluwaso Emmanuel, 2014. "Determinants Of Non-Performing Loans In Nigeria," Accounting & Taxation, The Institute for Business and Finance Research, vol. 6(2), pages 21-28.
    7. Sy-Hoa Ho & Jamel Saadaoui, 2022. "Bank credit and economic growth: A dynamic threshold panel model for ASEAN countries," International Economics, CEPII research center, issue 170, pages 115-128.
    8. Franklin Allen & Xian Gu & Oskar Kowalewski, 2017. "Financial structure, economic growth and development," Post-Print hal-01917114, HAL.
    9. Jean-Charles Rochet & Xavier Vives, 2004. "Coordination Failures and the Lender of Last Resort: Was Bagehot Right After All?," Journal of the European Economic Association, MIT Press, vol. 2(6), pages 1116-1147, December.
    10. Tomohiro Hirano & Noriyuki Yanagawa, 2017. "Asset Bubbles, Endogenous Growth, and Financial Frictions," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 84(1), pages 406-443.
    11. Dua, Pami & Kapur, Hema, 2018. "Macro stress testing and resilience assessment of Indian banking," Journal of Policy Modeling, Elsevier, vol. 40(2), pages 452-475.
    12. Kosuke Aoki & Gianluca Benigno & Nobuhiro Kiyotaki, 2009. "Capital Flows and Asset Prices," NBER Chapters, in: NBER International Seminar on Macroeconomics 2007, pages 175-216, National Bureau of Economic Research, Inc.
    13. repec:agr:journl:v:5(594):y:2014:i:5(594):p:127-`46 is not listed on IDEAS
    14. Hirano, Tomohiro & Yanagawa, Noriyuki, 2010. "Asset Bubbles, Endogenous Growth, and Financial Frictions," MPRA Paper 24085, University Library of Munich, Germany.
    15. Brunnermeier, Markus K. & Oehmke, Martin, 2013. "Bubbles, Financial Crises, and Systemic Risk," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 1221-1288, Elsevier.
    16. Pesola, Jarmo, 2005. "Banking fragility and distress: an econometric study of macroeconomic determinants," Bank of Finland Research Discussion Papers 13/2005, Bank of Finland.
    17. Bleck, Alexander & Liu, Xuewen, 2018. "Credit expansion and credit misallocation," Journal of Monetary Economics, Elsevier, vol. 94(C), pages 27-40.
    18. Goetz von Peter, 2003. "A Unified Approach to Credit Crunches, Financial Instability, and Banking Crises," Macroeconomics 0312006, University Library of Munich, Germany.
    19. Elizabeth J. Casabianca, 2020. "Credit Supply Response to Non-Performing Loans: Some Evidence From the Italian Banking System," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 10(4), pages 1-3.
    20. Alessandra Canepa & Fawaz Khaled, 2018. "Housing, Housing Finance and Credit Risk," IJFS, MDPI, vol. 6(2), pages 1-23, May.
    21. Harding, Don & Pagan, Adrian, 2011. "An Econometric Analysis of Some Models for Constructed Binary Time Series," Journal of Business & Economic Statistics, American Statistical Association, vol. 29(1), pages 86-95.

    More about this item

    Keywords

    NPAs; Macroeconomic Shocks; Structural financial macroeconometric model; Gauss-sidel algorithm; Simulations; Securitisation; Global financial crisis; Financial depth;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:apfinm:v:30:y:2023:i:4:d:10.1007_s10690-023-09397-9. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.