Non-Performing Loans and Systemic Risk of Indian Banks

9 Pages Posted: 28 Apr 2020

See all articles by Mihir Dash

Mihir Dash

Alliance University - School of Business

Date Written: April 1, 2017

Abstract

This study examines the role of non-performing loans in systemic risk for Indian banks using a fixed-effects panel regression model, with bank fixed effects and year fixed effects. The moderator variables considered for the study include bank size, capital adequacy, leverage, deposits, loans & advances, and investments.

The study contributes to the literature by proposing the concept of maximum level of non-performing loans for neutral systemic risk, which is the level of net non-performing loans to net advances for which the systemic risk is non-positive. The results of the study indicate that bank size, capital adequacy, and loans & advances have a significant impact on the maximum level of non-performing loans for neutral systemic risk. Further, the results of the study suggest that the role of non-performing loans in systemic impact was different for public sector and private sector banks.

The study suggests that the model can be used to set maximum levels of non-performing loans for individual banks with estimates or projections of the bank’s characteristics.

Keywords: systemic risk, non-performing loans, neutral systemic risk, public sector banks, private sector banks

JEL Classification: G18

Suggested Citation

Dash, Mihir, Non-Performing Loans and Systemic Risk of Indian Banks (April 1, 2017). Available at SSRN: https://ssrn.com/abstract=3567379 or http://dx.doi.org/10.2139/ssrn.3567379

Mihir Dash (Contact Author)

Alliance University - School of Business ( email )

Chikkahagade Cross,
Chandapura-Anekal Road, Anekal
Bangalore, Karnataka 562106
India
9945182465 (Phone)

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