Title: Managerial discretion and loan loss provision practices: an empirical study of the Indian public and private sector commercial banks

Authors: Meena Sharma; Meena Rani

Addresses: University Business School, Panjab University, 160014, Chandigarh, India ' University Business School, Panjab University, 160014, Chandigarh, India; Department of Higher Education, Government College, Kaithal, 136027, Haryana, India

Abstract: This study has examined the impact of income smoothing, capital management, and signalling practices on the loan loss provisions (LLPs) in the Indian commercial banks along with the credit-risk aversion behaviour of the management. It has also aimed to study whether the LLPs vary for the listed versus the unlisted banks in India. The Indian public and private sector commercial banks from FY 2009-2010 to 2018-2019 have been analysed through the dynamic panel-data regression technique, namely generalised method of moments (GMM) with the first differences. The results have shown that the Indian public and private sector commercial banks, besides the credit risk management, focus on the capital management and on the signalling practices as incentives while determining the amount of LLPs. The further analyses have shown the significant differences between the listed and the unlisted banks for the income smoothing and the signalling practices.

Keywords: loan loss provisions; LLPs; credit risk; capital management; earnings' management; signalling.

DOI: 10.1504/IJICBM.2024.140334

International Journal of Indian Culture and Business Management, 2024 Vol.32 No.4, pp.469 - 488

Received: 30 Aug 2022
Accepted: 20 Feb 2023
Published online: 03 Aug 2024 *

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