Open AccessNon-performing assets of banks and economic growth vinculum in the era of globalization: The Indian experience
Author(s) -
Sovik Mukherjee
Publication year - 2019
Publication title -
international journal of business ecosystem and strategy
Language(s) - English
Resource type - Journals
ISSN - 2687-2293
DOI - 10.36096/ijbes.v1i3.282
Subject(s) - recession , globalization , position (finance) , stock (firearms) , financial system , business , economics , government (linguistics) , non performing asset , business cycle , monetary economics , market economy , finance , macroeconomics , engineering , mechanical engineering , linguistics , philosophy , capital asset pricing model
The introduction of the New Economic Policy (NEP) in 1991 by the Government of India (GoI) made it very clear that the viability of commercial banks is conditioned on their ability to make profits. In a globalized world, the whims and fancies of business cycles govern the fate of banks and a recessionary phase hampers the bank’s ability to pile on the profits thereby increasing their stock of non-performing assets. India, recently, is placed in a very bizarre situation, — some of the renowned banks are reporting huge losses but there is a very limited impact on stock markets. Strategically, the government, however, has taken corrective measures to arrest the growth of non-performing assets (NPAs) of banks. This paper builds upon a time series model capturing the position of NPAs of banks in India (excluding foreign banks operating in India). Empirically, there is a uni-directional causal relationship running from NPAs of banks to growth. Theoretically, what we can conclude is that imposing strict lending norms on banks actually manifests itself into a deeper recession, lowers growth and in turn aggravates the NPA problem further.