Determinants of Non-Performing Assets of Commercial Banks in India

K. Ravirajan and K.R. Shanmugam
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K. Ravirajan: Research Scholar (Corresponding Author), Madras School of Economics, Gandhi Mandapam Road, Chennai-600 025 (India)

Working Papers from Madras School of Economics,Chennai,India

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.

Keywords: Bank credit; non-performing assets/loans; panel regression; Indian banking sector (search for similar items in EconPapers)
JEL-codes: C23 E51 G11 G21 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2023-11
New Economics Papers: this item is included in nep-fdg
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