Stress Test of Banks in India Across Ownerships: A VAR Approach

Banerjee, Sreejata; Murali, Divya

doi:10.2139/ssrn.2778993

Cited by 3 publications

(2 citation statements)

References 10 publications

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“…Such tools could include stress tests (e.g. Schuermann (2014), Banerjee and Murali (2017)) and regulation that affects the securitization market (e.g. Maddaloni andPeydr o (2010), Ben Salah andFedhila (2014)).…”

Section: Discussionmentioning

confidence: 99%

Fair-value accounting, asset sales and banks’ lending

Downing

2018

SEF

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Purpose This paper aims to examine the interaction between fair-value accounting, asset sales and banks’ lending in booms and busts. Throughout, the author uses “fair value” and “mark-to-market” interchangeably, to denote an accounting regime where changes in the prices of banks’ assets affect regulatory capital. “Historic-cost accounting” has been used in the paper to denote an accounting regime where changes in asset prices do not affect regulatory capital. Design/methodology/approach The author built a model that examines how the accounting regime affects banks’ incentives to sell assets and how the impact of the accounting regime on asset sales affects lending. Findings In a bust, fair value strengthens banks’ incentives to sell assets. The resulting increase in sales increases banks’ lending capacity. Consequently, lending can be higher under fair value. Conversely, in a boom, historic cost strengthens banks incentives to sell assets. The resulting increase in sales increases banks’ lending capacity. Hence, lending can be higher under historic cost. Originality/value This paper identifies a new channel through which the accounting regime could affect lending. The accounting regime can affect banks’ incentives to sell assets. The resulting difference in sales can affect banks’ ability to make new loans. Hence, in a boom, although banks book mark-to-market gains under fair value, asset sales could be higher under historic cost. Lending, thus, could be higher under historic cost. Conversely, in a bust, although banks book mark-to-market losses under fair value, sales could be higher under fair value. Lending, thus, could be higher under fair value.

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Section: Discussionmentioning

confidence: 99%

Fair-value accounting, asset sales and banks’ lending

Downing

2018

SEF

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“…That is why the provision coverage ratio of PSB has gone to more than 60% in 2019 from 50% during 2015. Continuous rise in bad loans have a huge impact on banks’ balance sheets and its operational, technical efficiency and other performance indicators (Arora et al, 2018; Balasubramaniam, 2012; Joseph & Prakash, 2014; Kaur & Singh, 2011; Rajeev & Mahesh, 2010; Rajput et al, 2012; Banerjee & Murali, 2017). Discussing sector-wise classification of bad loans contribution, literature found that industry is the highest contributor in GNPA followed by services sector.…”

Section: Introductionmentioning

confidence: 99%

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

Pramahender¹

2021

FIIB Business Review

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Indian banking sector is facing the problem of rising bad loans as gross non-performing assets (GNPA) of Indian banks is on continuous rise. The present study is an attempt to analyse rising bad loans scenario of Indian banks, various factors that contributes to non-performing assets (NPA), along with the present state of Indian banks. This study found that poor recovery measures, lack of proper credit and risk management system at bank level, wilful default by borrowers, lack of stringent regulation, poor level of corporate governance and misuse of funds by borrowers are the key factors behind the rising level of bad loans of Indian banks. It was found that public sector banks (PSB) are suffering the most from rising level of NPA, high rate of NPA of banks have adverse impact on banks’ balance sheets, their assets quality, increased provisioning coverage ratio of banks and low return on assets. Although various concerned stakeholders have taken numerous measures to curb the situation, such as recapitalization of PSB, construction of assets reconstruction companies (ARC), Debt Recovery Tribunals for speedy recovery of bad loans and enactment of insolvency and bankruptcy code (IBC),still there is much more to do, and have a huge scope to bring reforms in banking sector, especially in PSB of India.

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How Serious is India’s Nonperforming Assets Crisis? A Structural Satellite Version of the Financial-Macroeconometric Model

Nithin

Mishra

Pandikasala

2023

Asia-Pac Financ Markets

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This paper develops a Structural Satellite version of the Financial-Macroeconometric Model of India (SSFMMI) to examine whether the surge in Nonperforming Assets (NPAs) in Indian Public Sector Banks (PSUs) post-2015 is due to macroeconomic shocks or better classification of loans and cleaning of bank balance sheets. Specifically, the paper analyses the impact of a rainfall shock, domestic food price shock, world oil price shock, fiscal shock, and monetary shock using counterfactual policy simulations and an out-of-sample forecasting framework to validate the impact of these macroeconomic shocks on NPA levels. The paper's outcomes suggest that the late surges in NPAs are not due to macroeconomic shocks and, therefore, that Indian banks are resilient to such shocks. However, the study reveals that the rise in domestic fuel prices and world food prices can cause a surge in NPAs levels.

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Stress Test of Banks in India Across Ownerships: A VAR Approach

Cited by 3 publications

References 10 publications

Fair-value accounting, asset sales and banks’ lending

Fair-value accounting, asset sales and banks’ lending

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

How Serious is India’s Nonperforming Assets Crisis? A Structural Satellite Version of the Financial-Macroeconometric Model

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