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Macro‐economic determinants of non‐performing assets in the Indian banking system: A panel data analysis

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  • Aswini Kumar Mishra
  • Shikhar Jain
  • Mohammad Abid
  • Manogna R L

Abstract

Over the last few years, the Indian banking sector has been ceaselessly adding increasingly huge piles of non‐performing assets (NPAs), also known as bad loans, to its balance sheet. As of March 2018, gross NPAs for all scheduled commercial banks (SCBs) stood at over ₹10 trillion, compared to merely 4 years back, that is, March 2014, when they were almost one‐fourth of this. Aimed at tackling the NPA problem, the Insolvency and Bankruptcy Code (IBC) was enacted in 2016 by the Parliament of India, which provides for initiation and quick resolution of bankruptcy proceedings against defaulters. In 2017, the RBI identified 12 Mega‐defaulters which accounted for nearly INR 1.75 trillion of the total NPAs of Indian banks. Targeting the NPA problem at the policy level requires extensive research and analysis in order to come up with effective action plans. This study tries to analyse NPAs of Indian banks using panel data regression models and identify their key determinants. It also examines the relative severity of the NPA problem in case of public banks as compared to private banks.

Suggested Citation

  • Aswini Kumar Mishra & Shikhar Jain & Mohammad Abid & Manogna R L, 2021. "Macro‐economic determinants of non‐performing assets in the Indian banking system: A panel data analysis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 3819-3834, July.
    • Handle: RePEc:wly:ijfiec:v:26:y:2021:i:3:p:3819-3834
    DOI: 10.1002/ijfe.1989
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    References listed on IDEAS

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    1. Ashima Goyal & Akhilesh Verma, 2018. "Slowdown in Bank Credit Growth: Aggregate Demand or Bank Non-performing Assets?," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 12(3), pages 257-275, August.
    2. Ahlem Selma Messai & Fathi Jouini, 2013. "Micro and Macro Determinants of Non-performing Loan," International Journal of Economics and Financial Issues, Econjournals, vol. 3(4), pages 852-860.
    3. Faizul Haque & Rehnuma Shahid, 2016. "Ownership, risk-taking and performance of banks in emerging economies," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 8(3), pages 282-297, August.
    4. Pallavi Chavan & Leonardo Gambacorta, 2016. "Bank lending and loan quality: the case of India," BIS Working Papers 595, Bank for International Settlements.
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    1. Aswini Kumar Mishra & Shikhar Jain & Mohammad Abid, 2021. "Non‐performing assets and its determinants in the Indian banking system: An empirical analysis using dynamic panel data models," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 5948-5962, October.
    2. Cândida Ferreira, 2022. "Determinants of Non-performing Loans: A Panel Data Approach," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 28(3), pages 133-153, November.
    3. Matteo Foglia, 2022. "Non-Performing Loans and Macroeconomics Factors: The Italian Case," Risks, MDPI, vol. 10(1), pages 1-13, January.

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