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Assessing asset quality using bank specific and macro linkages of non-performing assets: case of public sector banks in India

Author

Listed:
  • Padmasai Arora
  • Neha Saini
  • A. Jiran Meitei
  • Hitesh Arora
  • Anju Goswami

Abstract

The aim of the study is to explore determinants of non-performing assets (NPAs) of public sector banks (PSBs) in India. Using balanced panel for the period 2004-2005 to 2018-2019, the study applies first difference GMM panel estimation method. The empirical analysis suggests that size of banks, exchange rate, inflation and Bankex have significant effect on non-performing assets of PSBs. Moreover, results show time persistence of non-performing assets. Alternative measures of profitability give the same negative and significant relationship with NPAs. Also, the study found mixed results regarding the relationship between advances to priority sector and non-performing assets. The major findings of the study are: 1) time persistence of NPAs in public sector banks in India; 2) profitable banks tend to have lower non-performing assets; 3) larger banks tend to have lower non-performing assets. The paper has important policy implications for the Indian public sector banks undergoing major consolidation.

Suggested Citation

  • Padmasai Arora & Neha Saini & A. Jiran Meitei & Hitesh Arora & Anju Goswami, 2023. "Assessing asset quality using bank specific and macro linkages of non-performing assets: case of public sector banks in India," International Journal of Indian Culture and Business Management, Inderscience Enterprises Ltd, vol. 29(2), pages 151-167.
    • Handle: RePEc:ids:ijicbm:v:29:y:2023:i:2:p:151-167
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