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Journal of Social and Economic Development

, Volume 20, Issue 2, pp 193–212 | Cite as

Non-performing assets (NPAs) and its determinants: a study of Indian public sector banks

  • Dhananjaya Kadanda
  • Krishna Raj
Research Paper
  • 25 Downloads

Abstract

There has been increased concern about the continued deterioration in the asset quality of Indian public sector banks in recent times. Reserve Bank of India’s Financial Stability Report 2017 acknowledged that the risks to the Indian banking sector have been increasing in the post-recession period, particularly, the risk of accumulating non-performing assets (NPAs). In this perspective, the current paper investigates the extent and growth of NPAs and interbank disparity in NPA management among public sector banks. We found that the profitability of public sector banks is declining in the post-crisis period and the amount of NPAs has been on the rise. Further, the recovery mechanisms have proved to be ineffective in containing the problem of bad debts. In a dynamic panel analysis, we also examined the determinants of NPAs in public sector banks and found that factors such as past NPAs, the operating efficiency of the bank, capital adequacy, GDP growth rate, and interest rate are the major determinants of the growth of NPAs in Indian public sector banks.

Keywords

Non-performing assets Net NPA Gross NPA Public sector banks 

JEL Classification

G21 

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Copyright information

© Institute for Social and Economic Change 2018

Authors and Affiliations

  1. 1.Centre for Economic Studies and PolicyInstitute for Social and Economic Change (ISEC)BangaloreIndia

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