Understanding the Impact of Bad Loans on Indian Banking Industry

Name of the Student
Name of the University
Author’s Note
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Table of Contents
Chapter 1: Introduction................................................................................................................4
What is the issue/problem?.......................................................................................................5
Why is the issue/problem important?......................................................................................6
Context of Research...................................................................................................................6
Research Questions:....................................................................................................................14
Chapter 2: Literature Review.....................................................................................................14
Summary of Literature............................................................................................................19
Methodology.............................................................................................................................21
Research Type..........................................................................................................................22
Data Analysis Tools..................................................................................................................23
Chapter 4: Findings and Analysis..............................................................................................39
Limitations of the Research....................................................................................................53
Chapter 5: Conclusion & Findings............................................................................................54
Causes that led to rising bad loans.........................................................................................57
Curative Measures...................................................................................................................59
References.....................................................................................................................................62
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Chapter 1: Introduction
The major challenges that are being faced by the Indian banking industry circumscribes
not only issues related to financial statements but also the incorporation of that long and the way
to understand its impact upon the financial health of the firms. Notably there are various
macroeconomic parameters that renders their impact in a significant level due to inter temporal
level of environment of the non-performing assets considered to be bad loans, the market
capitalization and the core competence factors. It is to be understood that the macroeconomic
parametric factors that examines the bad loans in accordance with the four key causes which are
awful supervision, cost consciousness, uncertainties in the market and many more. The feedback
phase is from 2005 to 2017 where various panels of data are being statistically estimated to
understand the Frontier model Garner causality, dynamic panel models, etc. that crucial impact
upon the banks. In this paper, this deterministic approach have been implemented to understand
the outcome of bad loans and their response that impact the banks as well as the macroeconomic
parametric factors that are associated with the commercial banking sector in India.
The non-performing assets are one of the crucial aspect of concern for every Banks is not
only the entire performance but also simultaneously the areas through which the bank can
improve their performance. From a critical point of view, the realistic Sinha you incorporate that
Indian banking division is in the process of experiencing serious issues regarding the non-
performing assets. The NPAs has relatively bigger impact upon ballistic view the credit non
payments as well as upon the liquidity of the banks. Specifically, upon the public division Bank
it has been found that the non-performing assets if handled properly then it enhances the
competence and effectiveness of Banking performance. Various steps are considered by the
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government in order to decrease the non-performing assets as well as the risk associated due to
the nonperformance of banking assets. It is to be understood that 0% non-performing assets is
quite impractical and hence in that case Indian banks must printer their attention to make sure
that the offer loans but most importantly to the creditworthy clients.
What is the issue/problem?
The implication of the bad loans is associated with its importance for which it arises in
the commercial banks of India. Notably every Indian banks needs assets we can provide credit
loans to potential consumer service becomes a matter of worrying if those assets becomes non-
performing for the banks. Non-performing assets are one of the most excellent tool that measures
the effectiveness of the bank and how sound performance it is executing in the market where it
prevail. Bad loans representative of a Bank's performance but also an essential. The towards the
credit risk associated with the banking performance. Bad loans are the allowable stress that every
banking business have to suffer subsequently. However, crucial necessity loans available the cost
of the fact that it remains unutilized or non-performing. Understanding on this aspect focuses on
the reliability of the customers as well as the banks’ ability to strategize the process of
overseeing bad loans. Locate me the public sector banks of demonstrated their greater execution
as compared to the private divisional banks of the country of India to the extent up to which
money that leads to the task under consideration.
The public Centre banks on this respect of non-performing assets have found to
demonstrate their performance coupled with greater outcome. How were the main issue of the
public sector bank without expanding level of non-performing assets despite of the fact that
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segments ok banking industry which non-performing Assets has crucial impact is monotonically
decreasing impact on the NPAs. To emphasize this issue it can be incorporated that the decrease
in the badlands have reinforced the examination of credit system of the consumers as well as
implementation of appropriate regulatory governance over the risk associated with it. The Indian
banking division has confirmed that major issues with the public sector banks in comparison to
thought of the day with division banks when the major aspect of concern is to enhance The
Prophecy and see and success level of the banks which is getting hamper due to improper control
over the non-performing assets.
Why is the issue/problem important?
The issue is important as per Mukherjee (2016), because of the fact that Indian banks are
top list of bad loans has collected by the lenders of the country. Compare to other economy is
like that of United Kingdom, states of America Japan, china, etc. it is been found that India is
consulted with dog challenge regarding non-performing assets being 5TH Nation among the 39
big Economics of the world that is suffered due to improper regulation or methodical
systematization of bad loans as well as non-performing assets.
Context of Research
The research is being performed upon the Indian banking industry and objectives of the
research is associated to create a proper information regarding the performance of the non-
performing assets like bad loans and to understand the extent of impact of it upon the Indian
banking sector. Confrontation with the problem of bad loans that is extensively taking place in
the Indian banking industry dog it is being rent at V nation in the world with such problem there
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is requisition for understanding the industrial scenario of the first Commercial Bank of India and
these financial data and information regarding non-performing assets are being utilized to
conduct the research.
Banking environment in India
The environment of the research circumscribes the Indian banking industry and
specifically the commercial banks of the country. The problems comes under focus due to the
challenges of bad loans confronted by banks. The ranking of the country in terms of faced
problem regarding bad loans is five throughout the world. The growth of the banking sector is
rapid and hence commercial banks are being taken under consideration for a better research to
understand the fast moving complex market scenarios based on fluctuating industrial conditions.
The co-operative banks and the commercial; banks together comprises of the Indian banking
industry in terms of facing challenges regarding the problems of non-performing assets. Hence,
banking industry of India has large involvement of the commercial banks as well as cooperative
banks. The proportion of the commercial banks are segregated with scheduled and non-
scheduled commercial banks upon which the scheduled commercial banks are one of the
commercial banks that incorporates the second schedule of The Reserve Bank of India Act 1934.
This scheduled commercial banks the activity based on certain circumstances where the
connection with paid up capital, reserves, etc. are of crucial importance. On the other hand the
scheduled commercial banks conquerors of the old and new domestic private sector banks, local
rural banks, overseas sector banks, State bank of India and its subsidiaries. The banks in India is
thus state owned specifically in two phases by the year 1969 and 1980 where 14 major private
sector banks were commenced and the remaining other 6 were established by the 1980 followed
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by the era of nationalization. The assessment was done based on the share of the credit for which
90 % of the divisional segment were done for government possessed bank while the rest of the
segment is being done by uniformly segregating them among the foreign banks and that of the
small privately owned banks whose size limit were set by the government as per the protocols of
nationalization. It is being found that from 1980 to 1992 the public sector banks were completely
owned by the government of the country. The first and foremost bank that shifted to become a
public sector bank was State Bank of India (SBI) by the year 1992-1993.
Figure 1: Comparison of different countries in terms of loans borrowed from the financial institutions
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Figure 2: Trends of housing loans Figure 3: Bank wise segmentation of the loans taken by households
Source: Ganapathy, Alagarsamy and Raguraman. (2017)
Since the nationalization of the banks it is been found that the banking sector is booming
based on it expansion in the market. From 1969 to 2015 the commercial banking sector have
found to grow up to 152 from 89. This raised the credibility of the banking financial services and
the products that are being deployed by them in the market. The images reveals that fact that
among the credit enjoyed by the households that are being obtained from various countries
throughout the world a brief comparison is being made between Brazil, China, Germany, India,
Indonesia, Kenya, UK, USA and Russia. There it is been seen that the borrowing from the
financial institutions specifically in India have lessened as compared to other countries. This may
be due to the reason that the company is not able to maintain the balance between acquiring
deposits to make and siphoning them off to the people who are making requisitions for loans.
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