Bank ownership and asset quality in Indian banking: is there a link? Online publication date: Mon, 18-Dec-2023
by Abhinav Goel; Archana Singh
International Journal of Economics and Accounting (IJEA), Vol. 12, No. 1, 2023
Abstract: Persistently elevated stressed assets negatively impact the banking sector and thereby economic growth. Therefore, banking sector risk is considered an important factor impacting macroeconomic stability and sovereign credit risk. While there could be many factors impacting levels of stressed assets, this work specifically analyses and finds that bank ownership in India is a major factor impacting levels of stressed assets and the quality of regulatory system plays a key role in timely stress recognition. The present work finds that private and foreign banks in India have better asset quality as compared to public sector banks (PSBs). Further, foreign banks exhibit more consistent NPL recognition. Also, as compared to other major economies, Indian banking NPLs are substantially higher. The work concludes that PSBs need to strengthen their credit appraisal systems, including inculcating best practices from international banks. Further, the regulatory framework needs be proactive regarding stress recognition, using forbearance sparingly.
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