Drivers of NPAs in Indian Banks: An Empirical Analysis of Bank-specific Determinants

The paper empirically analyses the factors responsible for non-performing assets (NPAs) in India’s banks, with a focus on bank-specific factors or determinants. Panel estimation of a total sample of 43 Indian banks, comprising 20 public sector banks (PSBs), 18 domestic private banks, and 5 foreign banks, has been conducted for the period from 2005 to 2020 to analyse the bank-specific factors that affect NPAs in India’s banks. To gain deeper insights into the NPA problem, a separate estimation was carried out for the high NPAs period, from 2011 to 2020. Separate estimations for the PSBs and domestic private banks were carried out to identify factors that drive NPAs in these bank groups. The finding suggests that inadequacies in earning management and the quality of lending are responsible for the NPA crisis in Indian banks. There is a need to revisit the earning and lending strategy of the banks in India. The PSBs, in particular, need to focus on their lending strategy as this bank group has been the major source of lending to the industrial and infrastructure sectors, the bulk of which turned into NPAs.