A Study on the Impact of Institutional-Specific and Macroeconomic Indicators on the Non-performing Assets of New Private Sector Banks in India

Abstract— The research aims at analyzing the influence of institutional-specific and macroeconomic indicators on the nonperforming assets of 7 new private sector banks in India for a period of 12 years from 2004-05 to 2015-16 using the econometric tools such as descriptive statistics, multiple correlation, augmented dickey-fuller test, granger causality and johansen cointegration test. The multiple correlation results portrayed a positive relationship for Gross Domestic Product Growth Rate (GDPGR) and Unemployment Rate (UR) whereas the Inflation Rate (IR) and Money Supply (MS) showed a negative relationship with the Gross Non-Performing Assets to Total Advances (GNPATA). The results of Augmented Dickey Fuller Test denote that the selected study variables don’t have Unit Root with them. The Granger Causality Test results confirmed that all the institutional-specific variables such as CAR, CRR, PLR, SLR, RR and RRR don’t granger cause the GNPATA. On the other hand, the macroeconomic variables such as IR, GDPGR and MS don’t granger cause whereas the UR alone does granger cause the GNPATA. Further the Johansen Cointegration Test results confirmed the co-integration of all the institutional-specific and macroeconomic variables with the GNPATA of New Private Sector Banks.

Keywords — Macroeconomic, Institutional-specific, New Private Sector Banks, Explained and Explanatory Variables.

I. INTRODUCTION

Bank plays a vital role in the development of any economy all around the world. In a developing country like India, the banks’ role is said to be predominant when compared to that of the other factors contributing to the national development at the same time. Banks are the heart of all financial system in this emerging global economy as well. Anything which affects the functioning of these banks will have an immediate effect on the total financial system of a country. The Non-Performing Assets (NPAs) is a huge burden for the banks now-a-days irrespective of their nature. This study aims at analyzing the two broad factors which may have association with the NPAs, namely the Macroeconomic and Institutional-specific indicators. The macroeconomic variables considered for the study include Gross Domestic Product Growth Rate (GDPGR), Inflation Rate (IR), Money Supply (MS) and Unemployment Rate (UR) whereas the institutionalspecific variables include Capital Adequacy Ratio (CAR), Cash Reserve Ratio (CRR), Prime Lending Rate (PLR), Repo Rate (RR), Reverse Repo Rate (RRR) and Statutory Liquidity Ratio (SLR).
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