Bank Credit, Economic Growth and Non-performing Assets- An Analysis of Indian Commercial Banking

Abstract

Commercial banks as a financial intermediary channelize the accumulated savings into productive purposes by lending. In doing so, they are exposed to credit risk, which is a result of wide array of factors. Credit is an essential factor for economic growth and rising levels of NPAs may hamper the overall objectives of credit growth in economic development. An understanding of the relationship between credit expansion, NPAs, and GDP growth rate is important in analyzing the credit function of commercial banks. Analysis of credit growth and NPAs across various banking groups such as public sector, private sector, and foreign banks provides important insight in understanding the relationship mentioned among banking groups and identifies the banking group that has been improving in asset quality. This paper provides a comparative analysis of the relationship among GDP growth rate, growth in bank credit and NPAs of scheduled commercial banks during 15 years period commencing from 1996-97 to 2010-11.

Keywords: Indian Commercial Banks, Bank Credit, Non-performing Assets and Economic Growth, Asset Quality in Banking, Credit Expansion, Credit Growth and NPAs, Public Sector Banks, Private Sector Banks

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