How Serious is India’s Nonperforming Assets Crisis? A Structural Satellite Version of the Financial-Macroeconometric Model

Nithin Mani (), Alok Kumar Mishra () and Jijin Pandikasala ()
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Nithin Mani: Indian Institute of Technology Kharagpur
Alok Kumar Mishra: University of Hyderabad
Jijin Pandikasala: Madras Institute of Development Studies (MIDS), Gandhi Nagar

Asia-Pacific Financial Markets, 2023, vol. 30, issue 4, No 5, 794 pages

Abstract: Abstract This paper develops a Structural Satellite version of the Financial-Macroeconometric Model of India (SSFMMI) to examine whether the surge in Nonperforming Assets (NPAs) in Indian Public Sector Banks (PSUs) post-2015 is due to macroeconomic shocks or better classification of loans and cleaning of bank balance sheets. Specifically, the paper analyses the impact of a rainfall shock, domestic food price shock, world oil price shock, fiscal shock, and monetary shock using counterfactual policy simulations and an out-of-sample forecasting framework to validate the impact of these macroeconomic shocks on NPA levels. The paper's outcomes suggest that the late surges in NPAs are not due to macroeconomic shocks and, therefore, that Indian banks are resilient to such shocks. However, the study reveals that the rise in domestic fuel prices and world food prices can cause a surge in NPAs levels.

Keywords: NPAs; Macroeconomic Shocks; Structural financial macroeconometric model; Gauss-sidel algorithm; Simulations; Securitisation; Global financial crisis; Financial depth (search for similar items in EconPapers)
JEL-codes: C53 E1 G21 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s10690-023-09397-9

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