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Does leverage influence banks' non-performing loans? Evidence from India

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  • Saibal Ghosh

Abstract

The study examines the association between corporate leverage and banks' non-performing loans. Using data on Indian manufacturing sector in India for 1993-2004, the findings indicate lagged leverage to be an important determinant of bad loans of banks. In terms of magnitudes, a 10 percentage point rise in the corporate leverage is, on average, associated with 1.3 percentage point rise in sticky loans relative to loans, after a one period lag. In terms of policy implications, the analysis suggests that the leverage ratio can serve as a useful signpost of asset quality and second, the analysis points to the need to improve the collection of data from the corporate sector.

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  • Saibal Ghosh, 2005. "Does leverage influence banks' non-performing loans? Evidence from India," Applied Economics Letters, Taylor & Francis Journals, vol. 12(15), pages 913-918.
    • Handle: RePEc:taf:apeclt:v:12:y:2005:i:15:p:913-918
    DOI: 10.1080/13504850500378064
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    Cited by:

    1. Elahi, M.A., 2011. "Essays on financial fragility," Other publications TiSEM 882f55bb-10dc-4e49-95ef-e, Tilburg University, School of Economics and Management.
    2. Ghosh, Saibal & Ghosh, Saurabh, 2006. "Impact of Liquidity constraint on Firms’ Investment Decisions," MPRA Paper 17181, University Library of Munich, Germany.
    3. Degryse, Hans & Penas, Maria Fabiana & Elahi, Muhammad Ather, 2012. "Determinants of Banking System Fragility: A Regional Perspective," CEPR Discussion Papers 8858, C.E.P.R. Discussion Papers.
    4. Vasiliki Makri & Konstantinos Papadatos, 2014. "How accounting information and macroeconomic environment determine credit risk? Evidence from Greece," International Journal of Business and Economic Sciences Applied Research (IJBESAR), International Hellenic University (IHU), Kavala Campus, Greece (formerly Eastern Macedonia and Thrace Institute of Technology - EMaTTech), vol. 7(1), pages 129-143, April.
    5. Ghosh, Saibal & Ghosh, Saurabh, 2006. "Does Monetary Policy Affect A Firm’s Investment Through Leverage? Micro Evidence for India," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 59(1), pages 17-31.
    6. Elona Shehu & Elona Meka, 2015. "NPLs — The Solution Recipe for Albania," European Journal of Economics and Business Studies Articles, Revistia Research and Publishing, vol. 1, September.
    7. Khalil Alnabulsi & Emira Kozarević & Abdelaziz Hakimi, 2023. "Non-Performing Loans as a Driver of Banking Distress: A Systematic Literature Review," Commodities, MDPI, vol. 2(2), pages 1-20, April.
    8. Salvador Climent-Serrano & Elisabeth Bustos-Contell & Gregorio Labatut-Serer, 2019. "Differential Effect on the Determinants of the Late Payments According to the Economic Cycle," Journal of Business Administration Research, Journal of Business Administration Research, Sciedu Press, vol. 8(1), pages 14-28, April.
    9. Joe‐Ming Lee & Ku‐Hsieh Chen & I‐Chia Chang & Chih‐Chun Chen, 2022. "Determinants of non‐performing loans, firm's corporate governance and macroeconomic factors," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(1), pages 88-98, January.
    10. Vasiliki Makri, 2016. "Towards an Investigation of Credit Risk Determinants in Eurozone Countries," Journal of Accounting and Management Information Systems, Faculty of Accounting and Management Information Systems, The Bucharest University of Economic Studies, vol. 15(1), pages 27-57, March.
    11. Salvador Climent-Serrano, 2017. "Econometric Model to Estimate Defaults on Payment in the Spanish Financial Sector in Oliver Wyman¡¯s Stress Tests," Applied Finance and Accounting, Redfame publishing, vol. 3(1), pages 24-35, February.
    12. Salvador Climent-Serrano, 2019. "Effects of economic variables on NPLs depending on the economic cycle," Empirical Economics, Springer, vol. 56(1), pages 325-340, January.
    13. Florian Manz, 2019. "Determinants of non-performing loans: What do we know? A systematic review and avenues for future research," Management Review Quarterly, Springer, vol. 69(4), pages 351-389, November.
    14. Ghosh, Saibal, 2007. "Relationship Lending and Financing Constraints: Firm-Level Evidence for India," MPRA Paper 24253, University Library of Munich, Germany.
    15. Swati Singh & Manpreet Arora, 2023. "Examining and analysing the determinants of non-performing assets in public and private sector banks in India," International Journal of Economics and Business Research, Inderscience Enterprises Ltd, vol. 25(4), pages 553-568.

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