Intellectual capital and non-performing assets: the role of knowledge assets in improving credit quality of Indian banking sector

Abstract

Purpose Intellectual capital (IC) is beneficial to the improved performance of businesses, irrespective of their industry. The present study proposes to check if the use of IC can also help in improving the asset quality of banks. Thus, this study aims to examine the impact of IC and its components on non-performing assets (NPAs). Design/methodology/approach The study has been conducted with a sample of 30 Indian commercial banks and analysed over a time frame of 15 years (2004–2005 to 2018–2019). The modified value-added intellectual coefficient model has been used to measure the independent variables, IC, and its components. The dependent variable, NPA, has been represented by the net NPA ratio. Two-step system generalized methods of moments (SGMMs) have been applied for the regression analysis. Along with the short-term estimates provided by the SGMM approach, the long-term impact of explanatory variables on the dependent variables has also been seen. Findings The results of the study show that IC and its components are indeed helpful for the management of NPA, as they impact the problem loans negatively. Furthermore, the long-term benefits of IC in enhancing bank credit quality are more substantial. Practical implications The results from the present study can be used by bank management. The bank managers can draw inferences that the efficient application of IC can help them reduce their loan losses. Developing skills and knowledge of employees, maintaining close relations with stakeholders, significantly the customers, and putting more sophisticated processes and infrastructure to use can help banks to control their loan losses. Originality/value A major proportion of studies examining the role of intangible assets in various aspects of the banking sector focuses on the association between IC and the financial performance of banking entities. However, for banking institutions, apart from financial performance, improving credit quality is also imperative for staying afloat. Thus, to the best of the authors’ knowledge, the present study is one of the first to examine the relationship between knowledge-based assets (i.e. IC) and bank credit quality.

Digitization of Microfinancing Operational Procedures

“…Integral to this process, microfinance officers' possession of intellectual capital, including knowledge, skills, training, and positive intangible capabilities, proved essential. A study by Gaur & Gupta (2023) indicated that intellectual capital positively influences the management of non-performing assets and aids in the handling of problematic loans, starting from the approval of loan applications. This highlights the holistic approach required in managing the intricate and critical stage of loan processing within microfinancing operations.…”

Relationship between intellectual capital and firm performance: evidence from the Indian sugar mill industry

“…The researchers specially in the field of management, have conducted the researches on Intellectual Capital in various sectors of India such as banking. pharma, manufacturing, haelthcare, higher education, business process outsourcing, electrician, mining asset financing and services (Gaur and Gupta, 2023; Gupta et al ., 2023; Rani and Sharma, 2023; Dharni and Jameel, 2021; Tiwari, 2022; Chatterji and Kiran, 2021; Raushan and Khan, 2017; Narwal and Yadav, 2017), but Indian sugar mill sector is an unexplored area in the existing literature. The contributions of this paper may be summarized as it is the first analytical research that evaluates the impact of IC on business performance of sugar mill companies in India.…”