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A hierarchical model of the determinants of non-performing assets in banks: an ISM and MICMAC approach

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  • Noor Ulain Rizvi
  • Smita Kashiramka
  • Shveta Singh
  • Sushil

Abstract

The banking systems of emerging economies in general and India in particular are facing sustained impairment due to mounting non-performing assets (NPAs). In the absence of stringent policies and their implementation, the results will be detrimental and may eventually lead to an economic crisis. Thus, it is imperative to unearth the causal factors and mitigate the risks involved with rising NPAs. The study attempts to identify the determinants of NPAs from the existing literature and subsequently, explore the interlinkages between the identified factors. A model of these factors is developed using Interpretive Structural Modeling (ISM) and MICMAC approach. Key managerial insights were obtained by the suggested model, specific to the Indian context. The hierarchical model provides a clearer perspective about the relationship between the factors and suggests that economic conditions and political factors are the key drivers which impact the ownership pattern and adherence to the regulatory framework; these further impact the internal factors related to the banks and borrowers’ capacity to repay. The study will act as a scaffolding for policymakers and bankers. Based on these findings, better instruments and mechanisms for recovery/management of NPAs can be put in place.

Suggested Citation

  • Noor Ulain Rizvi & Smita Kashiramka & Shveta Singh & Sushil, 2019. "A hierarchical model of the determinants of non-performing assets in banks: an ISM and MICMAC approach," Applied Economics, Taylor & Francis Journals, vol. 51(35), pages 3834-3854, July.
  • Handle: RePEc:taf:applec:v:51:y:2019:i:35:p:3834-3854
    DOI: 10.1080/00036846.2019.1584377
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    Citations

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    Cited by:

    1. Jiajia, Liu & Kun, Guo & Fangcheng, Tang & Yahan, Wang & Shouyang, Wang, 2023. "The effect of the disposal of non-performing loans on interbank liquidity risk in China: A cash flow network-based analysis," The Quarterly Review of Economics and Finance, Elsevier, vol. 89(C), pages 105-119.
    2. Anchal Patil & Vipulesh Shardeo & Ashish Dwivedi & Noor Ulain Rizvi & Sanjoy Kumar Paul, 2024. "A framework to evaluate the temporary hospital locations in wake of COVID-19 pandemic: implications to healthcare operations," Operations Management Research, Springer, vol. 17(2), pages 438-452, June.
    3. Ashish Dwivedi & Sanjoy Kumar Paul, 2022. "A framework for digital supply chains in the era of circular economy: Implications on environmental sustainability," Business Strategy and the Environment, Wiley Blackwell, vol. 31(4), pages 1249-1274, May.
    4. Mohammad Farhat Uddin & Vivek Deshwal & Syed Husain Ashraf, 2023. "A Study of Factors Amplifying Non-Performing Assets in Public and Private Banks in the Indian Economy," ComFin Research, Shanlax Journals, vol. 11(2), pages 1-4, April.
    5. Wen-Kuo Chen & Venkateswarlu Nalluri & Man-Li Lin & Ching-Torng Lin, 2021. "Identifying Decisive Socio-Political Sustainability Barriers in the Supply Chain of Banking Sector in India: Causality Analysis Using ISM and MICMAC," Mathematics, MDPI, vol. 9(3), pages 1-23, January.
    6. Gupta, Juhi & Kashiramka, Smita, 2020. "Financial stability of banks in India: Does liquidity creation matter?," Pacific-Basin Finance Journal, Elsevier, vol. 64(C).

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