NPAs in India's banks: trends and determinants

Abstract

Purpose – This paper aims to analyse trends and determinants of NPAs in India's banks. It has empirically examined the bank-specific determinants of NPAs. Design/methodology/approach – An FE panel estimation of a sample of 44 banks was carried out for the post-crisis time period, from 2010 to 2020 to identify the bank-specific determinants of NPAs. The sample of 44 banks includes 20 PSBs, 19 private banks and 5 foreign banks. Separate FE estimation was also carried out to identify the drivers of NPAs in PSBs. Findings – The determinant of NPAs during the post-crisis period suggests that faulty earning management and deterioration in loan quality have resulted in high NPAs in India's banks. The result is similar for PSBs as well. Research limitations/implications – The findings of the study suggest that the banks, especially the Public Sector Banks (PSBs) need to revisit their earning management strategies to maximise income and improve their loan quality in order to reduce the incidence of loan failure. Originality/value – The paper contributes by empirically analysing the determinants of NPAs during the recent decade, between 2010 and 2020. Separate estimations have been carried out to understand whether the drivers of NPAs differ in the case of PSBs.

Keywords

• NPAs
• India's banks
• PSBs
• Loan failure