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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
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    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

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