Influence Between Bank Spread Rate and NPA

Abstract

This research aimed to determine how interest rate dispersion affects the quantity of bad loans at Indian financial institutions. The research strategy used in this analysis of Indian Bank data was descriptive in nature. The Bank Supervision Report was employed as a secondary source for this study’s data collection. The correlation between interest rate spread and loan default was investigated using quantitative and qualitative methods of data analysis. Charts, tables, and pie diagrams were used to illustrate the information. The research found that the cost of loans paid to borrowers is affected by interest rate spread, and that interest rate regulations have far-reaching implications on asset non-performance since they determine the interest rate spread in banks and assist alleviate moral hazards incidental to NPAs. As interest rates are benchmarked against the associated non-performing assets and non-performing assets are attributed to high cost of loans, credit risk management techniques indirectly affect the value of a bank’s interest rate spread. Since an inefficient interest rate policy might raise interest rates and, in turn, NPAs, the study suggests that commercial banks in RBI should evaluate their clientele and charge interest rates properly. To lower the number of nonperforming loans (NPAs), they implement strict rules on interest rates charged by banks in order to regulate their interest rate spread and improve periodic/regular credit risk monitoring of their loan portfolios.