Economic slowdown, NPA crisis and productivity behavior of Indian banks

Abstract

PurposeThis paper aims to investigate the productivity behavior of Indian banks in the presence of non-performing assets (NPAs) over the period 1999 to 2017. The study examines whether Indian banks withstand the shocks of the global financial crisis (GFC) of 2007–2009 and sustain their total factor productivity (TFP) levels in the post-crisis economic turbulent period or not.Design/methodology/approachThe robust estimates of TFP and its components: efficiency change and technical change are obtained using the state-of-the-art and innovative sequential Malmquist-Luenberger productivity index (SMLPI) approach. The key advantages of this approach are that it explicitly allows the joint production of undesirable output (NPAs in our case) along with desirable inputs and outputs in the production process and precludes the possibility of spurious technical regress.FindingsThe empirical results of the study reveal that the Indian banking system has experienced a (−1) percent TFP regress, contributed solely by efficiency loss during the period under investigation. The GFC has slowed down the growth trajectory of TFP growth in the Indian banking industry. Among ownership groups, the effect of the GFC was pronounced on the public sector banks.Practical implicationsThe practical implication drawn from the study is that the Indian banks have not been able to successfully transmit the use of installed technology in a way to generate early warning signals and mitigate the risk of defaults so as to maximize their productivity gains in the banking industry.Originality/valueThis study is perhaps the first one to understand the productivity dynamics of the Indian banks in response to both endogenous (i.e. NPA crisis) and exogenous (i.e. global financial and economic stress) crises. Moreover, the authors obtain the robust estimates of TFP growth of Indian banks by explicitly accounting for NPAs as an undesirable output and equity as a quasi-fixed input in the bank production process.

Augmenting bank service quality dimensions: moderation of perceived trust and perceived risk

“…This sector is marked by its top-notch services and high customer involvement (Chauhan et al , 2019; Kaura, 2013). Globalization had a considerable influence on the Indian retail banking sector and paved way for the private sector and foreign banks in India (Bhuyan et al , 2021; Goswami and Gulati, 2021; Kaura et al , 2015; Kundu and Banerjee, 2021; Manohar et al , 2019; Roy et al , 2016; Sharma and Anand, 2020). It further triggered intense competitiveness in the banking sector; thus, customer satisfaction has become the epicenter of all activities (Bhatt, 2020; Chauhan et al , 2019; Manohar et al , 2019).…”

“…Penetration of new entrants in the Indian retail banking sector has enkindled fierce battle; therefore, customer satisfaction has been the talk of the town over the last few years (Bhatt, 2020; Chauhan et al , 2019; Goswami and Gulati, 2021; Kundu and Banerjee, 2021). Hence, the main aim of this empirical study is to explicate the antecedents and reverberation of customer satisfaction in the banking sector by augmenting perceived service quality model and reconnoitering the role of dual moderators in the form of perceived trust and perceived risk.…”

Impact of bank competition on financial stability-a study on Indian banks

“…It is the NPAs of banks measured in crores. The more the NPAs of a bank, the more instability it will create (Goswami and Gulati, 2021).…”

Critical Perspectives to Non-performing Assets of Indian Banks, Shrinking Balance Sheet, Challenges and Way Ahead

“…Indian economy is in emerging stage and one of the fastest emerging economies in the world; it requires robust and vibrant banking system, which can assist its inclusive growth targets. As banks positively channelize savings into investments to required parts of industries and stimulate effective manufacturing as well economic growth, the banking performance correlates with banking efficiency and technology (Goswami & Gulati, 2021; Rajaraman et al, 1999). The present scenario gives a different perspective on banks’ poor performance as banks balance sheets are shrinking after 2012, where level of non-performing assets is increasing rapidly, especially in case of PSB of country, impacting their balance sheet which is in worse condition.…”