Does leverage influence banks' non-performing loans? Evidence from India
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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Volume (Year): 12 (2005)
Issue (Month): 15 ()
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