Asset quality in indian banks analysis

However, India's banks face different kinds of problems, which have affected their profitability and financial stability, as per S S Mundra's speech.

The disaggregated empirical analysis reveals that NPAs growth is inversely associated with growth in agricultural GDP, with a lag period of six quarters approximately, viz. A reliable and efficient banking system has to achieve three goals: The current study also uses different econometric techniques for analysis of data which give more sound results.

What is Asset Quality Review (AQR)?

Furthermore, higher interest rates may result in adverse selection of borrowers, with only the riskier ones left in the market Stiglitz and Weiss, Reserve Bank of India RBI warned that the banking sector is under severe pressure, due to increased bad loans and an increase in bank fraud.

In the early of the s, India has achieved a significant progress in the performance and efficiency of its banking sector o Ghosh, Gross NPAs of banks and institutions have shot up by Rs 2,41, crore in these two quarters — December and March quarters of fiscal — mostly due to the aggressive provisioning undertaken by PSU banks at the behest of the RBI.

It set a target of Rs 3. As the large exposure regime for the banks will come into effect byNBFCs will have more room to operate in big corporates financing segment in the medium term. Hence, pro-cyclicality of credit pattern during the pre-crisis period could be considered as one of the factors responsible for asset quality deterioration during the recent years.

In order to drive employment and consumption, the government has increased focus on expediting the formalisation of the economy. In order for SBI to raise its stand-alone rating, the bank has to increase and sustain the level of its Tier 1 capital, as well as contain its asset quality, in line with other C- rated Indian banks over an extended period.

As a result, banks have lower capital available to use for its various operations. The banking system in India is a mixture of public, private, foreign, regional rural, urban cooperative, and rural cooperative banks Shrivastava, Sahu, and Siddiqui, The results bring out the fact that credit growth fed into growth in NPAs in a lagged manner, i.

It reduces the bank's ability to withstand financial pressures. The main reason being the liability of these banks on outstanding derivative contracts like Interest rate swaps, currency options and interest rate futures.

Commercial banks in India dominate the financial system and play a major role in economic development. Armed with easier sanction procedures, flexibility, and wide reach in small towns and cities, NBFCs stand on a surer footing vis-a-vis banks.

Bank specific determinants are related to the direct result of managerial decisions of a bank Louzis et al. However, by end-Marchthere was a sharp contrast in the movement of both, with credit growth witnessing a sharp contraction and growth in NPAs trending up.

Ingrowth further dropped to 6.

Asset Quality Rating

Taking into account some new governmental policies such as the demonetization process that could influence the profitability of Indian banks. The asset quality of banks can be judged by the non-performing assets NPA ratio.

Otherwise, a financial crisis can hit a country leading to recession like the US in This means the understanding of the determinants of bank profitability is essential and pivotal to the stability of the economy because the well-being of the banking sector is very critical to the welfare of the economy at large.

Section 2 presents the related literature review of banking profitability. Thus, rapid credit expansion fromto an extent, was encouraged by improvement in asset quality as credit intermediation function was impaired in the mids on account of high level of NPAs RBI, RCF, This is evident since asset base and profit levels declined during for new private sector banks but still the above ratios showing a continuous increasing trend.

This makes their business highly susceptible to market risk but these banks generally get involved in these activities because it gives them huge opportunity to earn commission, exchange, brokerage fees and also to make profit on exchange transactions. In case of banks, MSE loans accounted for a mere 5.

In fact, during the pre-crisis period, bank credit expanded at a robust pace, averaging at over 25 per cent. Banking on Non-Banking Finance Companies global debates on systemic risks arising from non-banks have travelled to Indian shores and led to somewhat with asset quality issues.

On the other hand, global regulatory attention on shadow banks brought the spotlight on. In the period immediately following the global financial crisis, when asset quality of banks in most advanced and emerging economies was impaired, the asset quality of Indian banks was largely maintained (RBI, AR, ).

1 Title of the Research Report - Asset Quality of banks: Evidence from India Author: Arpita Ghosh Assistant Professor, IIM Calcutta (Finance and Control Group) Macro Research INDIAN INSTITUTE OF BANKING & FINANCE. in India Deutsche Bank Group is a fully-integrated financial services provider to Indian Golden Peacock National Quality Award, Best Foreign Bank in India, in India, Best Mid-Sized Bank by Asset Quality, Deutsche Bank Group in India Deutsche Bank comprises four Business Divisions: Corporate Banking & Securities (CB.

RBI’s asset quality review: Deep surgery starting to show results

The increase in non-performing assets in Indian banks follows the recognition standards being pursued by the banks after the RBI highlighted it in the Asset Quality Review (AQR). Of course the main reason is inadequate progress in the financial health of the companies.

May 05,  · India’s financial regulator will gain new powers to order banks to clean up as much as $ billion of soured loans on their balance sheets, which .

Asset quality in indian banks analysis
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