COVID-19: boon/disguise for Indian banks?

Abstract

Non-performing assets (NPAs) have long been one of the most visible and frightening issues that have shaken the whole banking industry around the world. As a result, the study's primary goal is to elucidate the facts surrounding NPAs, which have harmed the Indian banking industry's soundness, profitability, and performance between 1998–1999 and 2019–2020. The future trends NPAs across ownership types and sectoral groups were also explored. The estimations of NPAs drivers are examined in the second stage regression analysis, which takes into account factors such as innovative COVID-19 and policy initiatives. Later, a clear ranking for 52 samples in Indian banks was utilised to verify stability using the ratio of net NPAs to net advances. During the pre-crisis and crisis periods, gross NPAs and net NPAs as a percentage of gross advances both fell dramatically, according to the trend analysis. During turbulent years, however, they significantly rose. Finally, we noticed that the asset quality of scheduled commercial banks and public sector banks is improving following a seven-year gap during the COVID-19 years. In a Phase II regression analysis, this scenario was thoroughly explored for Indian banks and statistically proved that severe policy actions and the negligible influence of the unique COVID-19 crisis contributed to a decrease in their NPAs ratio during 1999–2020. Credit expansion, recognition and resolution of non-performing assets via the Insolvency and Bankruptcy Code Act, recapitalization of PSBs, and ongoing reforms in the COVID-19 period are all major contributors to sporadic credit default in SCBs and PSBs' balance sheets—which began in 2017–2018 and continued in 2019–2020.