The Resiliency of Indian Banks: The Role of Bank-Specific and Macroeconomic Factors

Abstract

One of the main goals of economic reforms in many economies is to increase the resilience of the banks. Many central banks use econometric modelling based on bank-specific indicators to track financial stability. While bank-specific indicators can be useful for assessing the current state of banks, they cannot account for potential interactions with the macroeconomy or economic policy shocks. This study examines these dynamics by considering macroeconomic environment and bank-specific elements influencing Indian banks’ resilience from 2005 to 2017. This paper makes use of widely used measures of banking resilience such as gross non-performing assets ratio (GNPA) and profitability. Based on the GMM analysis, the results reveal that bank characteristics such as last period GNPA, last period ROA, loan size, leverage, liquidity, regulatory capital, and bank competition influence current GNPA and current ROA. The study provides evidence that macroeconomic factors such as inter-bank rate, economic policy uncertainty, and country’s GDP are significant in explaining the variation in both GNPA and ROA. The developed quantitative models assist banks and regulators in make decisions and design policies for improving bank resilience in terms of performance and stability.

Appendix

• A. Banks included in the sample

1	Allahabad Bank
2	Andhra Bank
3	Axis Bank
4	Bank of Baroda
5	Bank of India
6	Bank of Maharashtra
7	Canara Bank
8	Central Bank of India
9	Citibank
10	Corporation Bank
11	Dena Bank
12	Deutsche Bank AG
13	Federal Bank
14	HDFC Bank
15	HSBC Ltd
16	ICICI Bank
17	IDBI Bank Ltd
18	Indian Bank
19	Indian Overseas Bank
20	IndusInd Bank
21	Oriental Bank of Commerce
22	Punjab and Sind Bank
23	Punjab National Bank
24	State Bank of India
25	Syndicate Bank
26	UCO Bank
27	Union Bank of India
28	United Bank of India
29	Vijaya Bank
30	Yes Bank Ltd