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Non-Performing Loans and Systemic Risk of Indian Banks

Author

Listed:
  • Mihir Dash

    (Alliance University, India)

Abstract

This study examines the role of non-performing loans in systemic risk for Indian banks using a fixed-effects panel regression model, with bank fixed effects and year fixed effects. The moderator variables considered for the study include bank size, capital adequacy, leverage, deposits, loans & advances, and investments. The study introduces the concept of maximum level of non-performing loans for neutral systemic risk, which is the level of net non-performing loans to net advances for which the systemic risk is non-positive. The results of the study indicate that bank size, capital adequacy, and loans & advances have a significant impact on the maximum level of non-performing loans for neutral systemic risk. Further, the results of the study indicate major differences in the role of non-performing loans in systemic impact for public sector and private sector banks. The study suggests that the model can be used to set maximum levels of non-performing loans for individual banks with estimates or projections of the bank’s characteristics.

Suggested Citation

  • Mihir Dash, 2021. "Non-Performing Loans and Systemic Risk of Indian Banks," Journal of Applied Management and Investments, Department of Business Administration and Corporate Security, International Humanitarian University, vol. 10(1), pages 10-20, April.
    • Handle: RePEc:ods:journl:v:10:y:2021:i:1:p:10-20
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    systemic risk; non-performing loans; neutral systemic risk; public sector banks; private sector banks;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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