Open AccessAN ANALYSIS OF FACTORS AFFECTING NON-PERFORMING ASSETS IN INDIAN BANKING SECTOR
Author(s) -
Bhabani Mishra
Publication year - 2021
Publication title -
epra international journal of economic and business review
Language(s) - English
Resource type - Journals
eISSN - 2349-0187
pISSN - 2347-9671
DOI - 10.36713/epra8991
Subject(s) - return on assets , monetary economics , asset quality , market liquidity , exchange rate , net interest margin , economics , panel data , inflation (cosmology) , solvency , profitability index , fixed asset , private sector , non performing asset , interest rate , real gross domestic product , financial system , capital adequacy ratio , finance , econometrics , macroeconomics , profit (economics) , physics , capital asset pricing model , production (economics) , theoretical physics , microeconomics , economic growth
Deterioration of asset quality destabilizes the financial system by adversely affecting the efficiency, profitability, solvency and liquidity of the banking sector. Both macroeconomic and bank specific factors should be analysed properly to know their strength and direction of impact on the bad assets to have effective NPA resolution mechanism. Unemployment Rate Inflation, Economic Growth, Export rate, Exchange rate, Fiscal Deficit ratio are the macroeconomic indicators and Return on Assets, Credit Deposit ratio, Net Interest Margin are the bank specific factor that are taken from 2003-04 to 2019-20 to explain the variability in Non-performing assets of Public sector and Private sector banks. Fixed effect estimation with robust clustered standard error is used for the panel data regression. Paper found that except unemployment rate all other variables have significant impact on bad assets. Bank specific factor have strong negative impact on the dependent variables. Only exchange rate affects the non-performing loans positively but other macroeconomic variables are negatively associated.KEYWORDS: Non-Performing Assets, Macroeconomic indicators, bank specific factors, Fixed effect