Title: Scaling bad debts in Indian public sector banks: a multivariate analysis

Authors: Renu Arora

Addresses: Commerce Department, Mata Sundri College for Women, University of Delhi, Mata Sundri Lane, New Delhi-110002, India

Abstract: This paper empirically evaluates eight bank-specific credit risk determinants to explore the extent to which the Indian public sector commercial banks have been able to restrain their stressed commercial loans and check the NPA growth in lending to business and industry. The study analyses the inherent relationships and causality between these credit risk variables for 12 banks, for 11 years (2006-2017), immediately before large scale merger of some of these banks, using ratios, growth rates, linear simple and multiple regression analysis, and standard Granger causality tests. The study indicates that higher restructuring of loans and advances by the public sector banks has increased their non-performing loans, though causality between the two could not be established. A statistical causality relation at 10% level of significance between net non-performing assets and capital adequacy ratios has been found. The study also indicates capital adequacy ratios causing changes in net interest margin in the both, the best and worst performing public sector banks - the State Bank of India and the United Bank of India. These cause and effect relationships have contributed towards a new understanding about key credit risk parameters in commercial lending by banks.

Keywords: risk-weighted assets; debt restructuring; sensitive sectors; net interest margin; capital adequacy ratios; data analytics; stressed assets; operational efficiency.

DOI: 10.1504/IJBCRM.2021.119940

International Journal of Business Continuity and Risk Management, 2021 Vol.11 No.4, pp.324 - 342

Received: 21 Dec 2019
Accepted: 18 Mar 2020
Published online: 04 Jan 2022 *

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