Impact of Credit Risk on the Performance of Indian Banks

Abstract

Click Here:Access Full Text

Examining the impact of banks’ credit risk on their financial performance helps in the survival of banks, as well as in protecting the interests of their customers. In this study, we examine the impact of credit risk on banks’ performance, measured with Net Non-Performing Assets (NNPA) as an explanatory variable, and Return on Assets (ROA) and Return on Equity (ROE) as explained variables, while controlling others factors such as the size of the bank, loan advances, long-term capital, deposit, assets management, business per employee, and profit and loss per employee of banks. This study uses the data from the top 36 commercial Indian banks, in which half of the banks are from the public sector and the rest from the private sector, spanning the period 2010-2019. To assess that the results are not affected by endogeneity issues, we apply dynamic panel data techniques. The results from the study showed a negative and significant effect of NNPA on both the bank performance measures.

Keywords: Credit Risk, Public Sector Banks, Private Sector Banks, ROA, ROE

View PDF