Does credit risk persist in the Indian banking industry? Recent evidence (original) (raw)
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International Journal of Scientific & Technology Research, 2019
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Asian Journal of Accounting and Governance, 2021
In fast growing economies such as India, banks are seen as financial wagons that support financial progress and also have the additional responsibility to achieve the socioeconomic goals of the government. The issue of the recent corrosion in the asset quality of commercial bank is a major distress for the entire banking industry as there has been significant rise in the level of non-performing assets (NPAs) which are considered as a key parameter for assessing performance of banks. In this paper, the asset quality refers to the NPAs in Indian banking sector. This study seeks to examine the influence of NPAs on the performance of banks in India. The study is based on the secondary data of 48 scheduled commercial banks which includes 27 public sector banks and 21 private sector banks for the period 2007-08 to 2017-18, which was gathered and compiled from the published reports of Reserve Bank of India. In this study, NPAs to Gross Advances, Gross NPAs to total assets, Net NPAs to Net Advances and Net NPAs to Total Assets are used as proxy variables for non-performing assets whereas Return on Asset and Return on Equity are used as proxy variables for the performance of banks. The study found that NPAs adversely impacted the performance of banks irrespective of the category of banks. However, the Public Sector Banks were affected more by the augmented level of deteriorating assets quality than their private counterparts.
The aim of the empirical study is to investigate credit risk determinants in banking sectors across three kinds of South Asian economies. An accumulated sample of 105 unbalanced panel data of financial firms over the period of 2000-2015, by applying General Method of Moment (GMM) estimation techniques one-step at the difference in order to identify factors influencing credit risk. This study is inspired by two broad categories of explanatory variables which are bank-specific and macroeconomic. Bank-specific factors influencing unsystematic risk, while macroeconomic factors promoting systematic risk. The study uses a proxy of non-performing loans for credit risk in banking sectors of Pakistan, India, and Bangladesh. The empirical results have been found aligned with theoretical arguments and literature as expected. In comparison, NPLs in Pakistan is greater than India and Bangladesh, while India has the lowest ratio of non-performing loans. The study documents that bank-specific factors (inefficiency, profitability, capital ratio and leverage) have a significant contribution towards credit risk. Further, the study also finds a significant impact of macroeconomic variables on non-performing loans. While, the result in the case of Bangladesh predicts contradictions that have no significant effect on non-performing loans at various levels. The overall results indicate that credit risk is not influenced by only external factors but also affect by internal factors like bad management and skimping etc.