Macroeconomic and Bank Specific Determinants of Non-Performing Loans (NPLs) in the Indian Banking Sector

Open access

Abstract

The main objective of the paper is to find out the determinants of NPAs in the Indian Banking sector and to study if these determinants vary across the three different ownership structures viz., public sector banks (PSBs), private banks (PBs) and foreign banks (FBs), of banks in India. The panel data for all the banks from 2005 to 2014 is collected from the official website of Reserve Bank of India (RBI), the Central Bank of the country. The econometric technique of Fixed Effects model and Random Effects model is used for the purpose. The results reveal that Macro economic factors, like log of percapita income (LPCY) and Inflation (INFN), are significantly affecting NPLs in Public Sector Banks (PSBs). In case of private banks (PBs) LPCY is highly significant while bank specific variables like size and total loans to total loans of the banking sector (TLTLBS) are significant at 10% level. For FBs none of the variables were significant.

Abid, Ouertani and Ghorbel. (2014). Macroeconomic and Bank-Specific Determinants of Household’s Non-Performing Loans in Tunisia: a Dynamic Panel Data. In T. S. (TSFS) (Ed.), Procedia Economics and Finance 13. 13, pp. 58-68. Tunisia: Elsevier.

Alhassan, Coleman and Andoh. (2014). Asset quality in a crisis period: An empirical examination of Ghanaian banks. Review of Development Finance , 4 (1), 50-62. Berger and Deyoung. (1997). Problem Loans and Cost Efficiency in Commercial Banks. Journal of Banking and Finance , 21 (1), 1-28.

Bhaumik and Dimova. (2003). How important is ownership in a market with level playing field?The Indian banking sector revisited. Journal of Comparative Economics , 32, 165-180.

Boyd, J and M Gertler (1993): “US Commercial Banking: Trends, Cycles, and Policy”, NBER Working Paper 4404.

Fofack, Hippolyte, Nonperforming Loans in Sub-Saharan Africa: Causal Analysis and Macroeconomic Implications (November 2005). World Bank Policy Research Working Paper No. 3769. Available at SSRN: HYPERLINK "http://ssrn.com/abstract=849405"\t"_blank" http://ssrn.com/abstract=849405

Fischer, O. B. (Ed.). (1993). Commercial Banking: Trends, Cycles, and Policy. NBER Macroeconomics Annual 1993 (pp. 319 - 377). MIT Press.

Hu, J.L., Li, Y., Chiu, Y.H. (2004), Ownership and nonperforming loans: Evidence from Taiwan’s banks. The Developing Economies, 42(3), 405-420.

Kauko, K. (2012). External deficits and non-performing loans in the recent financial crisis. Economics Letters , 115, 196-199. BIBLIOGRAPHY \l 1033

Louzis, Vouldis, and Metaxas. (2012). Macroeconomic and bank-specific determinants of nonperforming loans in Greece: A comparative study of mortgage, business and consumer loan portfolios. Journal of Banking & Finance , 36, 1012-1027.

Nair and Iyer. (2016). Listed banks’ NPAs surge by Rs1 trillion in December quarter. Live Mint. URL link: HYPERLINK

"http://www.livemint.com/Industry/ZQhav7x8FESxfLT1tHp0aO/Listed-banks-NPAssurge-by-Rs1-trillion-in-December-quarter.html"

http://www.livemint.com/Industry/ZQhav7x8FESxfLT1tHp0aO/Listed-banks-NPAssurge-by-Rs1-trillion-in-December-quarter.html

Podpiera and Weillil. (2008). Bad luck or bad management? Emerging banking market experience. Journal of Financial Stability , 4 (2), 135-148.

Rajan and Dhal. (2003). Non-Performing Loans and Terms of Credit ofPublic Sector Banks in India:An Empirical Assessment. Reserve Bank of India (RBI).

Reddy, P. K. (2002, October). A comparative study of Non Performing Assets in India in the Global context - similarities and dissimilarities, remedial measures. SSRN working paper available at http://ssrn.com/abstract=361322 or http://dx.doi.org/10.2139/ssrn.361322 , 1-16.

Rinaldi and Sanchis-Arellano (2006) " Household Debt Sustainability What Explains Household Non-Performing Loans? An Empirical Analysis" European Central Bank Working Paper series No. 570, Jan 2006 available at https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp570.pdf?2546b8e00ce934b13cfe47c36da5bc45

Salas and Saurina. (2002). Credit Risk in Two Institutional Regimes: Spanish Commercial and Savings Banks. Journal of Financial Services Research , 22 (3).

Stiroh, K. J. (2004). Diversification in Banking: Is Noninterest Income the Answer? Journal of Money, Credit and Banking , 36 (5), 853-882.

Swamy, Vighneswara (2012) "Impact of macroeconomic and endogenous factors on non performing bank assets," International Journal of Banking and Finance: Vol. 9: Iss. 1.

(2015). Trends and Progress in Banking. RBI. RBI. available on https://rbidocs.rbi.org.in/rdocs/Publications/PDFs/0FLTP577BF4E172064685A26A73A6BC9210EC.PDF

Weill’s, P. a. (2008). Bad luck or bad management? Emerging banking market experience. Journal of Financial Stability , 4 (2), 135-148.

Journal Information

Metrics

All Time Past Year Past 30 Days
Abstract Views 0 0 0
Full Text Views 190 190 44
PDF Downloads 111 111 61