![Open Access](https://i-scholar.in/lib/pkp/templates/images/icons/fulltextgreen.png)
![Restricted Access](https://i-scholar.in/lib/pkp/templates/images/icons/fulltextred.png)
Macroeconomic Vulnerabilities and their Effect on Nonperforming Loans in Indian Commercial Banks
Subscribe/Renew Journal
This study explored the panel data of 27 public sector banks, 21 private sector banks, 5 SBI & associate banks along with 49 foreign banks covering the period from 2000-2018. The main objective of this paper was to investigate the impact of macroeconomic variables on nonperforming loans by categorizing the Indian scheduled banks into four categories namely public, private, foreign, and SBI associate banks. Altogether, five macroeconomic variables were taken focusing on economic growth, unemployment, interest rates, inflation, and exchange rate vulnerabilities. Using GMM model, the findings showed that macroeconomic variables differed for all the categories of banks as for public sector banks, including State Bank of India and its associates, all the variables were significant ; whereas, for private banks, inflation, growth rate, and interest rate were significant factors. On the contrary, foreign banks were more affected by exchange rate fluctuations apart from other macroeconomic variables. The findings of the study provided insights about how this relationship between macroeconomic variables and NPAs changed among the different categories of banks on the basis of ownership, thus assisting bankers and policy makers in taking precautionary measures while drafting banking and monetary policies as ownership of the banks plays a key role in the overall banking management, which we can also see from the analysis that over the years, private and foreign banks have considerably reduced their share of nonperforming loans from the overall share of NPAs in Indian commercial banks.
Keywords
GMM Model, Indian Banks, Macroeconomic, Nonperforming Loans, Inflation, Unemployment.
User
Subscription
Login to verify subscription
Font Size
Information
- Adebola, S. S., Yusoff, W. S. W., & Dahalan, J. (2011). The impact of macroeconomic variables on Islamic banks financing in Malaysia. Research Journal of Finance and Accounting, 2(4), 22 – 32.
- Ahmad, F., & Bashir, T. (2013). Explanatory power of macroeconomic variables as determinants of non- performing loans : Evidence from Pakistan. World Applied Science Journal, 22(2), 243 – 255. DOI: 10.5829/idosi.wasj.2013.22.02.1863
- Akinlo, O., & Emmanuel, M. (2014). Determinants of non-performing loans in Nigeria. Accounting & Taxation, 6(2), 21 – 28.
- Ali, A., & Daly, K. (2010). Macroeconomic determinants of credit risk: Recent evidence from a cross country study. International Review of Financial Analysis, 19(3),165– 171 . https://doi.org/10.1016/j.irfa.2010.03.001
- Amuakwa - Mensah, F., & Boakye-Adjei, A. (2015). Determinants of non-performing loans in Ghana banking industry. International Journal of Computation Economics and Econometrics, 5(1), 35 – 54. DOI: 10.1504/IJCEE.2015.066207
- Arellano, M. (1987). Practitioners’ corner : Computing robust standard errors for within - groups estimators. Oxford Bulletin of Economics and Statistics, 49(4), 431 – 434. https://doi.org/10.1111/j.14680084.1987.mp49004006.x
- Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. The Review of Economic Studies, 58 (2), 277 – 297. https://doi.org/10.2307/2297968
- Castro, V. (2013). Macroeconomic determinants of the credit risk in the banking system : The case of the GIPSI. Economic Modelling, 31, 672 – 683.
- Chaibi, H., & Ftiti, Z. (2015). Credit risk determinants: Evidence from a cross-country study. Research in International Business and Finance, 33, 1–16. DOI:10.1016/j.ribaf.2014.06.001
- Chandra, S., & Awasthi, R. (2019). Insolvency risk: Issues and challenges for public sector commercial banks of India. Indian Journal of Finance, 13(12), 19 – 33. DOI: 10.17010/ijf/2019/v13i12/149266
- Chow, G. C. (1960). Tests of equality between sets of coefficients in two linear regressions. Econometrica : Journal of the Econometric Society, 28(3), 591 – 605. https://www.jstor.org/stable/1910133?seq=1
- Cifter, A., Yilmazer, S., & Cifter, E. (2009). Analysis of sectoral credit default cycle dependency with wavelet ne tworks: Evidenc e from Turkey. Economi c Mode lling, 26(6), 1382 – 1388. https://doi.org/10.1016/j.econmod.2009.07.014
- Espinoza, R., & Prasad, A. (2010). Nonperforming loans in the GCC banking system and their macroeconomic effects (IMF Working Paper WP/10/224). Retrieved from https://www.imf.org/external/pubs/ft/wp/2010/wp10224.pdf
- Farhan, M., Sattar, A., Chaudhry, A. H., & Khalil, F. (2012). Economic determinants of non-performing loans : Perception of Pakistani bankers. European Journal of Business and Management, 4(19), 87 – 99.
- Festic, M., Kavkler, A., & Repina, S. (2011). The macroeconomic sources of systemic risk in the banking sectors of five new EU member states. Journal of Banking and Finance, 35(2), 310 – 322. https://doi.org/10.1016/j.jbankfin.2010.08.007
- Fofack, H. (2005.) Nonperforming loans in Sub-Saharan Africa : Causal analysis and macroeconomic implications (Policy Research Working Paper Series 3769). The World Bank. Retrieved from http://documents.worldbank.org/curated/en/446961468104639856/pdf/wps3769.pdf
- Geng, R., Bose, I., & Chen, X. (2015). Prediction of financial distress: An empirical study of listed Chinese companies using data mining. European Journal of Operational Research, 241 (1), 236 – 247. DOI: 10.1016/j.ejor.2014.08.016
- Ghosh, S. (2005). Does leverage influence banks' non-performing loans ? Evidence from India. Applied Economics Letters 12(15), 913 – 918. https://doi.org/10.1080/13504850500378064
- González-Hermosillo, B., Pazarbaşioğlu, C., & Billings, R. (1997). Determinants of banking system fragility: A case study of Mexico. Staff Papers (International Monetary Fund), 44(3), 295 – 314. DOI: 10.2307/3867561
- Goodhart, C. A., Basurto, M. A., & Hofmann, B. (2006). Default, credit growth, and asset prices(IMF Working Paper No.06/223).International Monetary Fund. Retrieved from https://www.imf.org/en/Publications/WP/Issues/2016/12/31/Default-Credit-Growth-and-AssetPrices-19902
- Gupta, P., & Jaiswal, K. K. (2020). Analysis of financial performance of selected public and private sector banks. Indian Journal of Finance, 14(1), 45 – 57. DOI: 10.17010/ijf/2020/v14i1/149856
- Jakubík, P., & Reininger, T. (2013). Determinants of nonperforming loans in Central, Eastern and Southeastern Europe. Focus on European Economic Integration, Oesterreichische National Bank (Austrian Central Bank), 3, 48 – 66.
- Khemraj, T., & Sukrishnalall, P, (2009). The determinants of non-performing loans: An econometric case study of Guyana (MPRA Paper No. 53128). Munich Personal RePEc Archive. Retrieved from https://mpra.ub.uni-muenchen.de/53128/1/
- Klein, N. (2013). Non-performing loans in CESEE: Determinants and impact on macroeconomic performance (Working Paper No13/72). International Monetary Fund . Retrieved from https://www.imf.org/en/Publications/WP/Issues/2016/12/31/Non-Performing-Loans-in-CESEEDeterminants-and-Impact-on-Macroeconomic-Performance-40413
- Kotishwar, A. (2018). Impact of digitalization on select banks. Indian Journal of Finance, 12(12), 32 – 51. DOI: 10.17010/ijf/2018/v12i12/139890
- Louzis, D. P., Vouldis, A. T., & Metaxas, V. L. (2012). Macroeconomic and bank-specific determinants of nonperforming loans in Greece: Acomparative study of mortgage, business and consumer loan portfolios. Journal of Banking & Finance, 36(4), 1012 – 1027. http://dx.doi:10.1016/j.jbankfin.2011.10.012
- Messai, A. S, & Jouini, F. (2013). Micro and macro determinants of non-performing loan. International Journal of Economics and Financial Issues, 3(4), 852–860 . https://www.econjournals.com/index.php/ijefi/article/view/517
- Nkusu, M. (2011). Nonperforming loans and macrofinancial vulnerabilities in advanced economies (IMF Working Paper WP/11/161). Retrieved from https://www.imf.org/external/pubs/ft/wp/2011/wp11161.pdf
- Ozili, P. K. (2018). Banking stability determinants in Africa. International Journal of Managerial Finance, 14(4), 462 – 483. https://doi.org/10.1108/IJMF-01-2018-0007
- Petropoulos, A., Siakoulis, V., Mylonas, D., & Klamargias, A. (2018). A combined statistical framework for forecasting default rates of Greek financial institutions' credit portfolios(Working Paper 243). Bank of Greece. Retrieved from https://www.bankofgreece.gr/Publications/Paper2018243.pdf
- Ramesh, A., & Kumar, C. B. S. (2018). Asset and debt management ratios in bankruptcy prediction - Evidence from India. Indian Journal of Finance, 12(80), 50 – 63. DOI: 10.17010/ijf/2018/v12i8/130744
- Reinhart, C. M., & Rogoff, K. S. (2010). Growth in a time of debt. American Economic Review, 100 (2), 573 – 578. DOI: 10.1257/aer.100.2.573
- Salas, V., & Saurina, J. (2002). Credit risk in two institutional regimes: Spanish commercial and savings banks. Journal of Financial Services Research, 22 (3),203–224 . https://doi.org/10.1023/A:1019781109676
- Shu, C. (2002). The impact of macroeconomic environment on the asset quality of Hong Kong's banking sector. Hong Kong Monetary Authority. Retrieved from https://www.hkma.gov.hk/media/eng/publicationand-research/research/working-papers/pre2007/RM20-2002.pdf
- Syed, A. A., & Tripathi, R. (2019). Non - performing loans in BRICS nations : Determinants and macroeconomic impact. Indian Journal of Finance, 13(2), 22 – 35. DOI: 10.17010/ijf/2019/v13i2/141684
- Tanasković, S., & Jandrić, M. (2015). Macroeconomic and institutional determinants of non-performing loans. Journal of Central Banking Theory and Practice, 4(1), 47 – 62. https://doi.org/10.1515/jcbtp-20150004
- Thiagarajan, S., & Ayyappan, S., & Ramachandran, A. (2011). Credit risk determinants of public and private sector banks in India. European Journal of Economics, Finance and Administrative Sciences, Issue 34, 147 – 154.
- Touny, M. A., & Shehab, M. A. (2015). Macroeconomic determinants of non-performing loans: An empirical study of some Arab countries. American Journal of Economics and Business Administration, 7(1), 11 – 22. doi: http://doi.org/10.3844/ajebasp.2015.11.22
- Uppal, R. K. (2011). Transformation in banks in a highly competitive e-age through e-services - An empirical study. Prabhandan: Indian Journal of Management, 4(3), 17 – 30. DOI: 10.17010/pijom/2011/v4i3/62371
- Viswanadham, N., & Nahid, B. (2015). Determinants of non-performing loans in commercial banks : Astudy of NBC Bank Dodoma Tanzania. International Journal of Finance & Banking Studies, 4 (1), 70 – 94.
- White, H. (1980). A heteroskedasticity - Consistent covariance matrix estimator and a direct test for heteroskedasticity. Econometrica : The Journal of Econometric Society, 48(4), 817 –838. DOI: 10.2307/1912934
- Wooldridge, J. M. (2010). Econometric analysis of cross section and panel data (2nd ed.). MITPress.
- Zribi, N., & Boujelbène, Y. (2011). The factors influencing bank credit risk: The case of Tunisia. Journal of Accounting and Taxation, 3(4), 70 – 78. DOI:10.5897/JAT11.006
![](https://i-scholar.in/public/site/images/abstractview.png)
Abstract Views: 221
![](https://i-scholar.in/public/site/images/pdfview.png)
PDF Views: 0