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Please use this identifier to cite or link to this item: http://repository.iitr.ac.in/handle/123456789/8864
Title: What drives credit risk in the Indian banking industry? An empirical investigation
Authors: Gulati R.
Goswami A.
Kumar S.
Published in: Economic Systems
Abstract: Using a two-step system GMM approach on a unique bank-level dataset for the period 1998/99–2013/14, this paper tries to explore the key determinants of credit risk in the Indian banking industry. The main premise of this paper is that, along with regulatory and institutional factors, both macroeconomic and bank-specific variables influence the formation of credit risk in a banking system, and their influences vary across ownership groups. The empirical findings suggest that lower profitability, more diversification in the banking business, the large size of banks and a higher concentration of banks in lending increase the probability of defaults in India. We find a significant degree of persistence in credit risk, and the observed persistence is higher in the gross non-performing loans (NPLs) specification relative to what has been observed in the net NPLs specification. In the case of public sector banks, NPLs are more sensitive to internal bank-specific factors, while for private and foreign banks, macroeconomic and industry-related factors play a significant role in determining credit risk. Our results are robust for different panel data estimation models and sub-samples of ownership groups. The findings of this paper provide important insights into the formation of default risk in the banking system of an emerging market economy. © 2018 Elsevier B.V.
Citation: Economic Systems (2019), 43(1): 42-62
URI: https://doi.org/10.1016/j.ecosys.2018.08.004
http://repository.iitr.ac.in/handle/123456789/8864
Issue Date: 2019
Publisher: Elsevier B.V.
Keywords: Credit risk
Indian banks
Persistence effect
System GMM
ISSN: 9393625
Author Scopus IDs: 26221190300
57202636418
57206762527
Author Affiliations: Gulati, R., Department of Humanities and Social Sciences, Indian Institute of Technology Roorkee, Roorkee, Uttarakhand 247667, India
Goswami, A., Department of Humanities and Social Sciences, Indian Institute of Technology Roorkee, Roorkee, Uttarakhand 247667, India
Kumar, S., Faculty of Economics, South Asian University, New Delhi, 110021, India
Corresponding Author: Kumar, S.; Faculty of Economics, South Asian UniversityIndia; email: skumar@econ.sau.ac.in
Appears in Collections:Journal Publications [HS]

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