NPA AND PROFITABILITY IN INDIAN SCHEDULED COMMERCIAL BANKS: DYNAMIC PANEL DATA ESTIMATION USING GMM

Kumar Aditya; Akash Dahire; Anmol Kumari

doi:10.29121/shodhkosh.v5.i6.2024.5030

Authors

Dr. Kumar Aditya Assistant Professor, Department of Commerce, Guru Ghasidas Vishwavidyalaya, Koni, Bilaspur, Chhattisgarh, India 495009
Akash Dahire Senior Research Fellow, Department of Commerce, Guru Ghasidas Vishwavidyalaya, Koni, Bilaspur, Chhattisgarh, India 495009
Anmol Kumari Research Scholar, Department of Commerce, Guru Ghasidas Vishwavidyalaya, Koni, Bilaspur, Chhattisgarh, India 495009

DOI:

https://doi.org/10.29121/shodhkosh.v5.i6.2024.5030

Keywords:

Non-Performing Assets, Profitability, Dynamic Panel, Generalised Method Of Moments (Gmm)

Abstract [English]

Scheduled commercial banks plays an important role in Indian financial system. These banks have undergone into many reforms to improve the operational performance and financial health. Despite of various reforms, the problem of non-performing assets persists in Scheduled Commercial Banks of India affecting the profitability, liquidity and overall financial health. This paper evaluates the problem of non-performing asset influencing the profitability of Scheduled Commercial Banks in India. To study, a sample of 52 banks having chronic non-performing assets over a period of 2003-2023 have been considered. The study uses Dynamic panel regression based on the Differenced GMM and System GMM. Both the models show robust results with the NNPA significantly affecting profitability.

References

Alfadli, A., & Rjoub, H. (2020). The impacts of bank-specific, industry-specific and macroeconomic variables on commercial bank financial performance: evidence from the Gulf cooperation council countries. Applied Economics Letters, 27(15), 1284–1288. https://doi.org/10.1080/13504851.2019.1676870 DOI: https://doi.org/10.1080/13504851.2019.1676870

Anuja Barge. (2012). NPA management in banks: an Indian perspective. IBMRD’s Journal of Management and Research, 1(1), 88–91.

Arellano, M., & Bond, S. (1991). Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations. The Review of Economic Studies, 58(2), 277–297. https://doi.org/10.2307/2297968 DOI: https://doi.org/10.2307/2297968

Arellano, M., & Bover, O. (1995). Another look at the instrumental variable estimation of error-components models. Journal of Econometrics, 68(1), 29–51. https://doi.org/10.1016/0304-4076(94)01642-D DOI: https://doi.org/10.1016/0304-4076(94)01642-D

Batwo Michael, E., & Guidi, F. (2020). The determinants of commercial banks’ profitability in the South-Eastern Europe region: a system GMM approach.

Bawa, J. K., Goyal, V., Mitra, S. K., & Basu, S. (2019). An analysis of NPAs of Indian banks: Using a comprehensive framework of 31 financial ratios. IIMB Management Review, 31(1), 51–62. https://doi.org/10.1016/j.iimb.2018.08.004 DOI: https://doi.org/10.1016/j.iimb.2018.08.004

Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87(1), 115–143. https://doi.org/10.1016/S0304-4076(98)00009-8 DOI: https://doi.org/10.1016/S0304-4076(98)00009-8

Bolarinwa, S. T., & Soetan, F. (2019). The effect of corruption on bank profitability. Journal of Financial Crime, 26(3), 753–773. https://doi.org/10.1108/JFC-09-2018-0102 DOI: https://doi.org/10.1108/JFC-09-2018-0102

Das, S. K., & Uppal, K. (2021). NPAs and profitability in Indian banks: an empirical analysis. Future Business Journal, 7(1), 53. https://doi.org/10.1186/s43093-021-00096-3 DOI: https://doi.org/10.1186/s43093-021-00096-3

Enowbi Batuo, M., & Guidi, F. (2021). The Determinants of Commercial Bank’ Profitability in the South-Eastern Europe Region: A System GMM Approach. SSRN Electronic Journal, 1–12. https://doi.org/10.2139/ssrn.3857948 DOI: https://doi.org/10.2139/ssrn.3857948

Gaur, D., & Mohapatra, D. R. (2020). The nexus of economic growth, priority sector lending and non-performing assets: case of Indian banking sector. South Asian Journal of Business Studies, 10(1), 70–90. https://doi.org/10.1108/SAJBS-01-2020-0010 DOI: https://doi.org/10.1108/SAJBS-01-2020-0010

Greeshmadas, M. H. (2022). Environmentally sustainable banking practices in the public and private sector banks in Kerala – a comparative analysis. https://doi.org/https://hdl.handle.net/20.500.12818/2424

Jayanata Kumar. (2012). A Study on NPA Management in Indian Banking Industry. Asian Journal of Research in Business Economics and Management, 2(6), 126–145.

Kanoujiya, J., Bhimavarapu, V. M., & Rastogi, S. (2023). Banks in India: A Balancing Act Between Profitability, Regulation and NPA. Vision: The Journal of Business Perspective, 27(5), 650–660. https://doi.org/10.1177/09722629211034417 DOI: https://doi.org/10.1177/09722629211034417

Khan, A. A. (2024). Discovering the relationship between bad loans (NPAs) and the profitability of public sector banks in India: A panel analysis. SMART Journal of Business Management Studies, 20(1), 57–70. https://doi.org/10.5958/2321-2012.2024.00006.X DOI: https://doi.org/10.5958/2321-2012.2024.00006.X

Krishnankutty, R., & Kumar Mohanty, B. (2018). Determinants of Profitability in Indian Banks in the Changing Scenario. International Journal of Economics and Financial Issues, 8(3), 235–240.

Krishnudu G. Chinni. (2022). Analysis of NPAs in Banking Sector-A Case Study of Public and Private Sector. Anveshana’s International Journal of Research in Regional Studies, Law, Social Sciences, Journalism and Management Practices, 7(10), 1–10.

Kumar, G., & Abhay, N. |. (2017). Lessons from NPAs crisis in Indian banks. https://doi.org/10.1002/pa.1672 DOI: https://doi.org/10.1002/pa.1672

Levin, A., Lin, C. F., & Chu, C. S. J. (2002). Unit root tests in panel data: Asymptotic and finite-sample properties. Journal of Econometrics, 108(1), 1–24. https://doi.org/10.1016/S0304-4076(01)00098-7 DOI: https://doi.org/10.1016/S0304-4076(01)00098-7

Maity Sudarshan, & Sahu Tarak Nath. (2017). Pre-Merger Performance Measures of State Bank of India and Its Associate Banks Using Data Envelopment Analysis. Business Spectrum, VII (2), 16–26.

Mostak Ahamed, M. (2017). Asset quality, non-interest income, and bank profitability: Evidence from Indian banks. Economic Modelling, 63, 1–14. https://doi.org/10.1016/J.ECONMOD.2017.01.016 DOI: https://doi.org/10.1016/j.econmod.2017.01.016

Nisar, S., Peng, K., Wang, S., & Ashraf, B. N. (2018). The impact of revenue diversification on bank profitability and stability: Empirical evidence from south asian countries. International Journal of Financial Studies, 6(2). https://doi.org/10.3390/IJFS6020040 DOI: https://doi.org/10.3390/ijfs6020040

Ozili, P. K. (2018). Banking stability determinants in Africa. International Journal of Managerial Finance, 14(4), 462–483. https://doi.org/10.1108/IJMF-01-2018-0007/FULL/PDF DOI: https://doi.org/10.1108/IJMF-01-2018-0007

Prasad G.V. Bhavani, & D Veena. (2011). NPAS in Indian banking sector-trends and issues. Journal of Banking Financial Services and Insurance Research, 1(9), 67–84.

Prasanna P. Krishna, Thenmozhi M., & Rana Nimit. (2014). “Determinants of non-performing advances in Indian banking system.” Banks and Bank Systems, 9(2), 65–77.

Rachman, R. A., Kadarusman, Y. B., Anggriono, K., & Setiadi, R. (2018). Bank-specific factors affecting non-performing loans in developing countries: Case study of Indonesia. Journal of Asian Finance, Economics and Business, 5(2), 35–42. https://doi.org/10.13106/JAFEB.2018.VOL5.NO2.35 DOI: https://doi.org/10.13106/jafeb.2018.vol5.no2.35

Radivojevic, N., & Jovovic, J. (2017). Examining of determinants of non-performing loans. Prague Economic Papers, 26(3), 300–316. https://doi.org/10.18267/j.pep.615 DOI: https://doi.org/10.18267/j.pep.615

Rani, I., Babu J, R., & Kumar M, S. (2024). Analyzing the Effect of Non-performing Assets on Profitability: A Study of Indian Public Sector Banks. 203–215. https://doi.org/10.1007/978-3-031-48075-1_18 DOI: https://doi.org/10.1007/978-3-031-48075-1_18

Roodman, D. (2009). How to do xtabond2: An introduction to difference and system GMM in Stata. Stata Journal, 9(1), 86–136. https://doi.org/10.1177/1536867X0900900106 DOI: https://doi.org/10.1177/1536867X0900900106

Sahul Hamid, F. (2017). The Effect of Market Structure on Banks’ Profitability and Stability: Evidence from ASEAN-5 Countries. International Economic Journal, 31(4), 578–598. https://doi.org/10.1080/10168737.2017.1408668 DOI: https://doi.org/10.1080/10168737.2017.1408668

Satpathy, A., Behera Samir Ranjan, & Digal Sabat Kumar. (2015). Macroeconomic factors affecting the NPAs in the Indian banking system: An empirical assessment. IUP Journal of Bank Management, 14(1), 57–74.

Sen Ahana. (2021). Impact of NPA on Borrowers: A Study on Select Indian Public Sector Banks. In Baksi Arup Kumar & Khan Gholam Syedain (Eds.), books.google.com (pp. 179–187). Allied Publishers Pvt. Limited.

Singodiya, K., Jain, S., Farhan, M., & Mansoori, S. (2022). How NPA Affects The Profitability Of Indian Bank. Migration Letters, 19(S2), 1621–1625.

Sinha, P., & Sharma, S. (2016). Determinants of bank profits and its persistence in Indian Banks: a study in a dynamic panel data framework. International Journal of System Assurance Engineering and Management, 7(1), 35–46. https://doi.org/10.1007/s13198-015-0388-9 DOI: https://doi.org/10.1007/s13198-015-0388-9

Siraj, K. K., & P. Sudarsanna Pillai. (2013). Efficiency of NPA management in Indian SCBs-A Bank-group wise exploratory study. Journal of Applied Finance and Banking, 3(2), 123–137.

Sufian, F., Kamarudin, F., & Nassir, A. md. (2016). Determinants of efficiency in the malaysian banking sector: Does bank origins matter? Intellectual Economics, 10(1), 38–54. https://doi.org/10.1016/J.INTELE.2016.04.002 DOI: https://doi.org/10.1016/j.intele.2016.04.002

Thammanaveni, K. (n.d.). A Study of Non-Performing Assets of Commercial Banks and It’s Recovery in India.

Yahya, A. T., Akhtar, A., & Tabash, M. I. (2017). The impact of political instability, macroeconomic and bank-specific factors on the profitability of Islamic banks: An empirical evidence. Investment Management and Financial Innovations, 14(4), 30–39. https://doi.org/10.21511/imfi.14(4).2017.04 DOI: https://doi.org/10.21511/imfi.14(4).2017.04

Zaman, H., Gul, B., Supervisor, Z., & Lions, C. (2011). Camels Rating System for Banking Industry in Pakistan Does CAMELS system provide similar rating as PACRA system in assessing the performance of banks in Pakistan?