Nonperforming Loans in Banks Are Managers Only Responsible?

Abstract

Given the fact that Indian banking sectors are marred by the crisis of nonperforming loan, the study tries to find out the factors responsible for such crisis across ownership and size of the banks, using binomial multivariate panel logistic regression. Overall, it is found that regulatory measures such as CAR and economic growth such as credit to GDP ratio are irrelevant for probability of NPAs. Nevertheless, diversified sources of income and return on assets (ROA) help the banks to reduce their probability of loan assets becoming NPAs. On the other hand, loan size and provisioning contribute positively to probability of NPAs. As far as ownership is concerned, return on assets and diversification of sources of income help both the group of banks to trim the probability of NPAs. On the other hand, in both the cases probability of NPAs increases following the increase in credit to GDP ratio and provisioning. Further as far as bank size is concerned. ,return on assets (ROA) and diversified sources of income help the small size banks in downsizing the probability of NPAs, whereas only diversified sources of income helps the large size banks in this regard. However, for both large and small category banks, higher “Provisioning” is found to be positively related to higher probability of NPA. Credit to GDP ratio contributes to higher probability of NPAs in case of only large banks .On the whole for controlling NPAs, performance of managers may be given more emphasis rather than bringing out regulations.