Reserve Financial institution of India Occasional Paperwork Vol. twenty four, No . 3, Winter the year 2003

Non-Performing Loans and Terms of Credit of Open public Sector Banking companies in India: An Empirical Assessment Rajiv Ranjan and Sarat Chandra Dhal*

This paper explores an empirical approach to the analysis of commercial banks' non-performing loans (NPLs) in the Indian context. The empirical research evaluates about how banks' non-performing financial loans are affected by 3 major models of financial and monetary factors, my spouse and i. e., terms of credit, bank size induced risk preferences and macroeconomic shock absorbers. The scientific results from -panel regression types suggest that conditions of credit rating variables include significant effect on the banks' non-performing loans in the existence of financial institution size caused risk preferences and macroeconomic shocks. Moreover, alternative measures of traditional bank size could give rise to differential impact on bank's non-performing loans. In regard to conditions of credit variables, changes in the cost of credit in terms of expectation of higher interest induce rise in NPAs. On the other hand, factors just like horizon of maturity of credit, better credit traditions, favorable macroeconomic and organization conditions cause lowering of NPAs. Organization cycle may have differential box implications adducing to differential response of borrowers and lenders. JEL Classification: G21, E51, G11, C23 Keywords: Bank credit, nonperforming loans, terms of credit, panel regression.

Advantages Financial balance is considered because sine qua non of sustained and rapid financial progress. Between various indications of financial balance, banks' nonperforming loan assumes critical importance since it reflects on the advantage quality, credit rating risk and efficiency inside the allocation of resources to productive sectors. A common point of view is that the issue of banks' nonperforming financial loans is attributed to political, economic, sociable, technological, legal and environmental * Rajiv Ranjan can be Director and Sarat Chandra Dhal is definitely Assistant Adviser in Office of Economic Analysis and Policy, Hold Bank of India. The authors are exceedingly thankful to Shri Manoranjan Mishra, intended for his valuable suggestions and insightful conversations. The responsibility to get the opinions expressed in the paper rests with the creators only.



(PESTLE) factors across countries (2003, Bhide, et. al., 2002, Dasjenige and Ghosh). During the last 10 years, the PESTLE framework offers undergone significant changes, largely, due to strength transformation of emerging financial systems, including India, amidst change of financial sector, economic the usage induced by simply rapid embrace the rate of globalisation and advancements in information technology. Moreover, Government intervention inside the credit market features eased significantly. Advances in technology have got facilitated fast exchange info across marketplaces, creation of newer lending options, and reduction in transaction costs, thus, causing enhanced functional efficiency of banks and financial institutions. The institutional facilities has been heightened in various techniques. Countries have got adopted international best practices pertaining to prudential control and supervision. In the world of legal environment, several measures had been undertaken inside the areas of financial debt recovery, securitisation and advantage reconstruction, image resolution of defaults and non-performing loans, besides changes and amendments to the archaic laws pertaining to bank and financial sector. Total, these improvements have triggered structural change in the economical sector, which includes created conducive environment for market system, in general, and economic factors, in particular, intended for playing a major role in influencing the portfolios of banks and financial institutions. It can be in this circumstance that this study has undertaken an scientific analysis for evaluating the impact of monetary and economical factors about banks' non-performing loans. The distinguishing characteristic of...