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Determinants of Non-Performing Assets of Commercial Banks in India

Author

Listed:
  • K. Ravirajan

    (Research Scholar (Corresponding Author), Madras School of Economics, Gandhi Mandapam Road, Chennai-600 025 (India))

  • K. R. Shanmugam

    (Director and Professor, Madras School of Economics, Gandhi Mandapam Road, Chennai)

Abstract

Banks’ credit growth continues to decelerate in India due to huge non-performing assets (NPAs) overhangs in banks. This study empirically analyzes the determinants of NPAs of scheduled commercial banks in India during 2009-2020, using the panel data methodology. Results indicate that the excessive credit growth in the past increased the surge in the current NPAS. The economic slowdown also aggravates loan delinquencies in Indian commercial banks. While higher priority sector lending creates higher loan delinquencies, higher banks size and higher profitability reduce it. This study suggests that counter capital buffer, dynamic provisioning and a sound credit appraisal NPA will improve the financial stability and monetary policy effectiveness. We hope that these findings are useful for policymakers, bankers and other stakeholders to make appropriate strategies to resolve the NPA issue is India.

Suggested Citation

  • K. Ravirajan & K. R. Shanmugam, 2023. "Determinants of Non-Performing Assets of Commercial Banks in India," Working Papers 2023-251, Madras School of Economics,Chennai,India.
    • Handle: RePEc:mad:wpaper:2023-251
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    File URL: https://www.mse.ac.in/wp-content/uploads/2024/01/Working-Paper-251.pdf
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    More about this item

    Keywords

    Bank credit; non-performing assets/loans; panel regression; Indian banking sector;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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