Predicting Non Performing Assets (NPAs) of Banks: An Empirical Analysis in the Indian Context

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The purpose of the present work is to predict the non performing assets (NPAs) of the Indian Banks. Binary response models including Logit and Probit models have been applied to estimate the relationship between several factors and NPAs. Also, censored technique of Tobit analysis is applied to validate the results. A sample consisting of 37 Indian banks for the period 2005 – 2013 has been considered. The study revealed that there exist certain patterns in NPAs in the Indian Banks. Private sector banks have consistently lower NPAs as compared to public sector banks. The study also finds out that several firm level factors such as capital adequacy ratios, profitability, and size are helpful in predicting NPAs for the Indian Banks.