Non-performing assets and profitability of Indian banks: an econometric study

Abstract

The diminishing profitability of the Indian banking industry is owing to added stressed assets, wilful defaulters, and loss making assets depict massive bleeding of their balance sheets. The after effects can be now seen through the regulators implementing strictest vigilance, follow up with the banks, recovery measures such as Bankruptcy laws 2016, corporate debt restructuring (CDR), high provisioning, and heavy pecuniary penalties to the defaulters. The authors have estimated bank specific, macroeconomic determinants of the non-performing loans and their impact on the banking profitability. Multivariate panel data analysis for 35 Indian public and private sector banks over the period 2007-2016 has been done using panel data through fixed effect regression and modified ordinary least square and system GMM approach has been deliberated. Detailed estimation results in public vs. private sector banks have been given the conclusion. The NPA management in PSU banks needs attention as it affects the efficiency and profitability exponentially.