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Determinants of Financial Stress of Indian Banks

Author

Listed:
  • Nitin Kumar
  • Arvind Shrivastava
  • D. P. Singh
  • Purnendu Kumar

Abstract

The study examines factors influencing non-performing loans (NPLs) for Indian banks. The analysis contributes by including restructured advances also in addition to standard measures of asset quality that provides comprehensive picture of pressure on banks’ balance sheet. Moreover, Bayesian technique with multivariate t -distributed prior is applied for robust estimation. Utilizing quarterly dataset from 2005 to 2015, strong persistence of bad assets is clearly evident. Bank-specific characteristics such as growth of advances, profitability and net interest margin are significant determinants. Among macro-factors, high growth rate is having retarding impact on bad assets. Moreover, ownership effect is having differential behaviour with state-owned banks being most vulnerable. JEL: G21, C11, C23

Suggested Citation

  • Nitin Kumar & Arvind Shrivastava & D. P. Singh & Purnendu Kumar, 2018. "Determinants of Financial Stress of Indian Banks," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 19(2), pages 210-228, September.
    • Handle: RePEc:sae:soueco:v:19:y:2018:i:2:p:210-228
    DOI: 10.1177/1391561418794695
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    More about this item

    Keywords

    Non-performing loans; banks; Bayesian analysis; panel data models;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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