Management and Control of Non Performing Assets (NPA) in Indian Public Sector Banks

Mishra, Suyash; Aspal, Parvesh Kumar

doi:10.2139/ssrn.2875378

Cited by 4 publications

(6 citation statements)

References 7 publications

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“…On the other hand, negative and significant coefficient of maturity for private sector banks signifies decline in default risk with increase in term of loan. This result is similar to the one concluded by Mishra and Dhal (2009). They have explained the negative relationship between tenure and NPA due to the fact that longer term loan contracts could be attributable to better relationship between the banks and borrowers.…”

Section: Empirical Analysissupporting

confidence: 89%

“…Similar findings relating to bank size were reported by Ali and Puah (2018). Mishra and Dhal (2009) in their paper demonstrated that banks’ NPAs are influenced by terms of credit variables (interest rate, maturity, collateral) and bank-specific indicators relating to asset size, credit orientation, financial innovation, regulatory capital requirement and business cycle shocks. The study found that terms of credit variables and bank-specific variables had significant effect on bank’s NPAs in the presence of macroeconomic shocks.…”

Section: Review Of Literature and Lacuna Of Existing Studiessupporting

confidence: 83%

“…The study also attempts to examine the interlinkage among these determinants. Although there are several studies, for example, Das and Ghosh (2007), Rajaraman et al (1999), Mishra and Dhal (2009), which discuss the issues of NPAs and its determinants, all these studies have primarily examined only the public sector banks in the country. However, the studies on recovery of bad loans are mostly common in the developed economy context.…”

Section: Introductionmentioning

confidence: 99%

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Impact Assessment Study of NPAs and Rate of Recovery: Are Private Sector Banks in India Better off?

Bajaj

Sanati

Lodha³

2021

Global Business Review

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Our study significantly contributes in understanding a comparative framework and the interactions of idiosyncratic and systematic factors for determining non-performing assets (NPA) and rate of recovery for banks in India, as put forward by Basel committee. Although determinants of NPA is very well debated issue, the comparison of public and private sector banks in terms of their assets quality i.e. NPAs and rate of recovery and their determinants like collateral, operational inefficiency, GDP growth rate etc. are the added contribition of this study. We have employed Arrelano–Bond dynamic panel method on 35 banks in India for the period 1998–1999 to 2017–2018 for determinants of NPAs, while determinants of rate of recovery are studied for the period 2003–2004 to 2017–2018. Our findings show that the priority sector loan has significant differences in determining NPA across banks despite them having sufficient collateral. The negative relationship between collateral and recovery, especially for private sector banks, signifies low recovery for illliquid collateral. This study may recommend that a bank with high net interest margin (NIM), high proportion of secured and liquid collateral, and sufficient mix of long- and short-duration loans in line with bank’s asset liability policy can manage their portfolio well.

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Section: Empirical Analysissupporting

confidence: 89%

Section: Review Of Literature and Lacuna Of Existing Studiessupporting

confidence: 83%

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Impact Assessment Study of NPAs and Rate of Recovery: Are Private Sector Banks in India Better off?

Bajaj

Sanati

Lodha³

2021

Global Business Review

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“…A company's financial health is crucial for its overall performance, long-term viability, and sustainability (Altman, 2000) . A myriad of factors, such as credit risk management (Berger and DeYoung, 1997;Ranjita and Nishant, 2020), solvency (Vodová, 2011), liquidity (Mishra and Aspal, 2011), and profitability (Olson and Zoubi, 2008), significantly influence a company's financial well-being and might even lead to bankruptcy, which makes it very important to model the financial failure and equity failure of the companies and markets as done in previous research (Jitender, 2021) . Despite the extensive literature on these individual factors, the complex hierarchy and interdependence among various financial factors impacting companies have not yet been adequately explored .…”

Section: Introductionmentioning

confidence: 99%

Deciphering Financial Health and Risk: Hierarchical Relationships and Interdependencies among Key Factors

Jain,

Malik,

Malik

2023

Acta Universitatis Sapientiae, Economics and Business

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This study examines the hierarchical relationships and inter dependencies of financial factors impacting companies’ health, using Total Interpretive Structural Modelling and Matrice d’Impacts Croisés Multiplication Appliquée à un Classement analyses. It identifies key financial factors and their influences. Findings reveal credit risk as a pivotal factor with substantial impact on other parameters. Solvency, capital adequacy, and Tier 1 capital ratios are also key determinants of financial health. The study further categorizes factors into independent, linkage, autonomous, and dependent categories. This research offers valuable insights for managers, policymakers, and investors aiding decision-making.

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“…In 2009, the Reserve Bank of India (RBI) announced that the Indian banking system is resilient to the shocks from high nonperforming assets (NPA) and the global economic crisis [3]. Mishra and Dhal (2010) showed that business cycles are the primary cause for NPAs. An asset becomes non-performing when the borrower defaults in payment of interest and principal according to the agreed terms.…”

mentioning

confidence: 99%

Stress test of banks in India across ownerships: a VAR approach

Banerjee

Murali

2017

SEF

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Purpose This paper aims to examine whether the Indian banking system is robust to withstand unexpected shocks from external and domestic macroeconomic factors after financial liberalization in 1992. As proposed by Demirgüç-Kunt and Detragiache (1998) and Kaminsky and Reinhart (1999) banking crisis follows financial liberalization. India embarked financial deregulation from 1992, whereas the ongoing global financial crisis (GFC) could jeopardize bank portfolios. Design/methodology/approach Stress test is undertaken through the vector auto regressive (VAR) model to examine if decline in GDP, exchange rate volatility and foreign capital portfolio funds adversely impact bank asset quality through higher defaults. The VAR model is run for banks belonging to public, private or foreign ownership. Soundness of banks is measured by the non-performing assets (NPAs) with quarterly data from 1997 to 2014. Post-VAR estimation technique, Granger causality test (GC) and impulse response function (IRF) are used to check for robustness of the VAR model findings. Findings The authors found that there is little divergence among banks of different ownership in responding to the shocks from REER, foreign capital flows and GDP output gap. IRF shows that GDP shock to NPA of public and private banks takes more than nine and eight quarters to stabilize. Foreign banks are impacted by the same macroeconomic factors. The stress test exhibits that public banks are more vulnerable and need recapitalization. Moreover, domestic banks are not adversely affected by the GFC, and credit for this could be attributed to the Reserve Bank of India’s (RBI’s) regulatory policy. Research limitations/implications Surprisingly, capital market indices do not influence banks’ NPA, and this needs further investigation. The limitation arises from the fact that stock market index for banks was launched only in the early 2000. Missing data and limited number of banks shares traded in the market could explain the trivial results. Practical implications Findings of this study will be useful to RBI policymakers and bank managers. The exchange-rate risk faced by borrowers that lead to increased NPAs is an issue that the RBI would be interested to examine. The impact of foreign capital flows, adversely influencing the NPAs of banks, is a significant issue that the RBI is concerned with. Social implications Banking sector crisis has serious repercussions, causing loss of household savings and decline in confidence in the banking sector. Originality/value This topic was explored in India only by Bhattacharya and Roy in (2008). No other similar work has been done to the authors’ knowledge in stress test of banks in India across different ownership. The authors’ study period covers the GFC and shows that it has not caused devastation as it has in developed countries.

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Management and Control of Non Performing Assets (NPA) in Indian Public Sector Banks

Cited by 4 publications

References 7 publications

Impact Assessment Study of NPAs and Rate of Recovery: Are Private Sector Banks in India Better off?

Impact Assessment Study of NPAs and Rate of Recovery: Are Private Sector Banks in India Better off?

Deciphering Financial Health and Risk: Hierarchical Relationships and Interdependencies among Key Factors

Stress test of banks in India across ownerships: a VAR approach

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