Non-Performing Loans and Systemic Risk of Indian Banks

Mihir Dash ()

Journal of Applied Management and Investments, 2021, vol. 10, issue 1, 10-20

Abstract: This study examines the role of non-performing loans in systemic risk for Indian banks using a fixed-effects panel regression model, with bank fixed effects and year fixed effects. The moderator variables considered for the study include bank size, capital adequacy, leverage, deposits, loans & advances, and investments. The study introduces the concept of maximum level of non-performing loans for neutral systemic risk, which is the level of net non-performing loans to net advances for which the systemic risk is non-positive. The results of the study indicate that bank size, capital adequacy, and loans & advances have a significant impact on the maximum level of non-performing loans for neutral systemic risk. Further, the results of the study indicate major differences in the role of non-performing loans in systemic impact for public sector and private sector banks. The study suggests that the model can be used to set maximum levels of non-performing loans for individual banks with estimates or projections of the bank’s characteristics.

Keywords: systemic risk; non-performing loans; neutral systemic risk; public sector banks; private sector banks (search for similar items in EconPapers)
JEL-codes: G21 G32 H81 (search for similar items in EconPapers)
Date: 2021
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