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The IUP Journal of Applied Finance

The Impact of Non-Performing Assets on the Performance of Scheduled Commercial Banks of India: A Time-Series Analysis

Article Details

Pub. Date	:April, 2019
Product Name	: The IUP Journal of Applied Finance
Product Type	: Article
Product Code	: IJAF31904
Author Name	: Paromita Dutta and Chanchal Chatterjee
Availability	: YES
Subject/Domain	: Finance
Download Format	: PDF Format
No. of Pages	: 20

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Abstract

The Indian financial system consists of various financial institutions, of which commercial banks play an active role in the development of the country’s economy as a whole. The present paper attempts to study the impact of Non-Performing Assets (NPA), capital adequacy to risk-weighted assets and liquidity on the operational performance [termed as Return on Assets (ROA)] of scheduled commercial banks in India. ROA is taken as the dependent variable. The time-series data has been collected for scheduled commercial banks (consisting of 27 public sector, 25 private sector and 45 foreign banks) in India for the period 1997-1998 to 2016-2017. The study uses Augmented Dickey-Fuller Test to check the stationarity of data. To measure the cointegrating relationship between dependent and independent variables, Johansen cointegration model has been used. The study finds that there is a long-run causality between dependent and independent variables with negative coefficients for NPA and liquidity.

Description

Indian financial system is greatly dominated by banks, but the constant deterioration of bank’s asset quality has not only shrunk its overall profitability, but has also restricted financial intermediation. During 2016-17, almost 35% credit was provided by commercial banks to commercial sector.
The stock-in-trade in banking business is money, which they deal in terms of deposits from various economic agents in the form of loans and advances. Adequate assets are required for survival, sustenance and development in the overall bank money creation process and it also helps to shape the fortune of the firm in both short and long run.