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Do Indian banks understate their bad loans?

Author

Listed:
  • Niranjan Chipalkatti
  • Meenakshi RishiAuthor-Email: rishim@seattleu.edu

    (Seattle University, USA)

Abstract

Did banking sector reforms in India and the adoption of capital adequacy norms based on the Basel Capital Accord prompt Indian banks to understate their bad loans? This paper addresses this question by investigating whether Indian banks under provide for loan loss provisions and understate their gross non performing assets in order to boost earnings and capital adequacy ratios. The paper examines the behavior of Indian banks in the context of tighter regulatory standards that became effective after 1999. The results show that “weak” Indian banks – defined by low profitability and low capital ratios camouflaged the magnitude of their gross non performing assets in the post-1999 period. Based on this the paper concludes that the true nature of India’s bad loan problem may be more serious than alluded to in recent studies.

Suggested Citation

  • Niranjan Chipalkatti & Meenakshi RishiAuthor-Email: rishim@seattleu.edu, 2007. "Do Indian banks understate their bad loans?," Journal of Developing Areas, Tennessee State University, College of Business, vol. 40(2), pages 75-91, January-M.
    • Handle: RePEc:jda:journl:vol.40:year:2007:issue2:pp:75-91
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    Citations

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    Cited by:

    1. Nagar, Neerav & Sen, Kaustav, 2016. "Earnings management in India: Managers’ fixation on operating profits," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 26(C), pages 1-12.
    2. Noor Ulain Rizvi & Smita Kashiramka & Shveta Singh, 2018. "Basel I to Basel III: Impact of Credit Risk and Interest Rate Risk of Banks in India," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 17(1_suppl), pages 83-111, April.
    3. Pandey, Ashish & Tripathi, Abhinava & Guhathakurta, Kousik, 2022. "The impact of banking regulations and accounting standards on estimating discretionary loan loss provisions," Finance Research Letters, Elsevier, vol. 44(C).
    4. Kishore Meghani, Kishore Meghani & Hari Krishna Karri, Hari Krishna Karri & Bharti Meghani Mishra, Bharti Meghani Mishra, 2015. "A Comparative Study On Financial Performance Of Public Sector Banks In India: An Analysis On Camel Model," MPRA Paper 62844, University Library of Munich, Germany.
    5. Deepa Mangala & Neha Singla, 2021. "Quality of Reported Earnings: An Empirical Study of Indian Banking Industry," Vision, , vol. 25(2), pages 159-167, June.
    6. Kishore Meghani, Kishore Meghani, 2014. "Financial Performance Of Axis Bank And Kotak Mahindra Bank In The Post Reform Era: Analysis On CAMEL Model," MPRA Paper 60260, University Library of Munich, Germany.

    More about this item

    Keywords

    Indian banks; Bad loans; Loan loss provisions; Capital adequacy norms;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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