Sensitivity of Credit Risk to Bank Specific and Macro Economic Determinants: Empirical Evidence from Indian Banking Industry
Keywords:
Macroeconomic determinants, Bank specific determinants, Non-performing loans, credit risk, GDP, CAR, ROE, ROA, Panel Data, Fixed Effect Model, Random Effect ModelAbstract
Both macroeconomic and bank-specific factors affect the Non-Performing Loan Ratio used as proxy for credit risk,. Using panel data this study identifies bank specific and macroeconomic factors that contribute to the rising credit risk in public and private Banks in India. Fourteen private banks and twenty six public banks listed on Bombay Stock Exchange have been studied for the period from 2000/2001 to 2015/2016. The annual reports of the Indian banks under study STATA 12 has been used to analyse the data. The empirical results shows that bank specific factors ROA , ROE, Credit Deposit, operating inefficiency , CAR and size are significant having inverse relationship and Credit growth significant and influences credit risk positively. Loan loss provision to total loss is insignificant but positively related. GDP growth rate, lending rate, unemployment rate and annual inflation rate are significant and are having inverse relation with non-performing loans, and exchange rate is significant and positively related suggesting significance of both bank specific and macroeconomic factors. The study concludes that that 55% variation in the percentage change in Non-Performing Loan to Total Loans (Credit risk) can be explained by the variation s in the bank specific and macroeconomic factors.
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