Aug 2026· Journal of Financial Regulation and Compliance· 0 citations· 119 references
Abstract
The present paper aims to investigate the relationship between non-performing assets (NPAs) and profitability in Indian commercial banks. Focusing on the major economic disruptions, namely, the global financial crisis, demonetization and the COVID-19 pandemic, it examines their role in structurally reshaping the NPA-profitability nexus.
Our dataset comprised a balanced panel of 30 public and private sector commercial banks in India covering the period from 2004 to 2024. We applied Bai–Perron multiple breakpoint tests and Chow tests to identify regime shifts. Static panel regressions with Heteroskedasticity and Autocorrelation Consistent-corrected ordinary least squares and dynamic system generalized method of moments (GMM) estimations are employed to address heteroskedasticity, autocorrelation and endogeneity. The model incorporates bank-specific factors, market concentration indicators, macroeconomic variables and an interaction term between inflation and broad money (BM).
The findings reveal multiple statistically significant structural breaks corresponding to major economic shocks. NPAs consistently exert a significant negative impact on profitability across all regimes, while bank size positively influences return on assets, particularly during crisis periods. Market concentration yields mixed and regime-dependent effects. The interaction between inflation and BM significantly moderates profitability during transitional phases, highlighting the role of inflation-adjusted liquidity conditions in shaping bank performance.
The findings suggest that bank managers should strengthen credit risk monitoring and adopt proactive asset quality management, especially during periods of inflationary liquidity expansion. The policymakers and regulators can benefit from implementing countercyclical capital buffers and dynamic stress-testing frameworks tailored to structural shocks. However, our results should be interpreted with caution as we excluded foreign banks from our dataset and focused solely on Indian commercial banks, which may limit cross-country generalizability. Future research could extend the framework to comparative emerging-market settings.
To the best of our knowledge, this study is the first attempt to integrate structural break analysis with dynamic GMM estimation and to introduce inflation-adjusted liquidity as a moderating mechanism in the NPA-profitability relationship in an emerging economy context.
This study develops a dynamic panel econometric framework to quantify the structural impact of macroeconomic conditions on the non-performing loan (NPL) ratios of commercial banks across a panel of twenty-eight emerging market economies observed between 2010 and 2024. Addressing dynamic persistence and the endogeneity inherent in the joint determination of credit quality and macro-financial conditions, the empirical strategy combines a two-step System Generalized Method of Moments (System GMM) estimator with a Panel Autoregressive Distributed Lag (P-ARDL) error-correction specification estimated via Pooled Mean Group (PMG). The results confirm strong dynamic persistence in NPL ratios and show that real GDP growth, the unemployment rate, consumer price inflation, and the real lending rate are statistically significant macroeconomic drivers of asset-quality deterioration. Critically, the interaction between currency depreciation and the share of unhedged foreign-currency lending is found to amplify the NPL response to exchange-rate shocks, a channel of particular relevance to partially dollarized banking systems in transition economies such as Uzbekistan, where reported and risk-based measures of asset quality have been shown to diverge materially. The error-correction estimates indicate that approximately one-third of any disequilibrium between actual and long-run equilibrium NPL levels is corrected within a single year. These findings offer a structural basis for calibrating countercyclical provisioning and macroprudential buffers in emerging banking systems exposed to currency and business-cycle volatility.
Djamalov Gofir Oribjanovich· EPRA International Journal o...· 0 citations
This study examines the dynamics of asset quality across all twelve Indian public-sector banks
(PSBs) over fiscal years 2011–2026, using a merger-consistent (pro-forma) panel of 192 bankyears constructed from Reserve Bank of India (RBI) data and bank disclosures. The empirical
workhorse is deliberately simple: the canonical non-performing-loan (NPL) determinants panel,
in which the gross non-performing-asset (GNPA) ratio is regressed on its own lag, real GDP
growth, the ten-year government-bond yield, and lagged credit growth, with bank fixed effects
and standard errors clustered by bank. Three findings emerge. First, asset quality is highly
persistent: the autoregressive coefficient is about 0.71 with the full set of controls—implying a
half-life of roughly two years—and is robust to adding year fixed effects and to excluding the
pandemic years. Second, the relationship between GNPAs and the macroeconomy is not
structurally stable: interest rates matter, but the coefficient on GDP growth is weak and wrongsigned in the pooled panel, and when the identical regression is estimated separately before and
after the AQR the GDP coefficient collapses from +1.20 to zero—evidence that the 2016 surge
was a supervisory recognition event rather than a business-cycle effect. Third, a transparent,
calibrated stress test—reconciled to the RBI June 2026 Financial Stability Report—finds that all
twelve banks remain above the eight-per-cent CET1 prompt-corrective-action floor even under a
severe five-percentage-point GDP contraction, with the asset-weighted GNPA ratio rising from
1.94 to 3.93 per cent. Cross-sectionally, the stressed-capital ranking is governed by starting
capital and bank size rather than current asset quality.
Mihir Khanna· International Journal of Soc...· 0 citations
This paper re-examines the determinants of profitability in Bangladeshi private commercial banks, using a panel-corrected standard errors (PCSE) analysis of ten listed banks over 2014–2023 (n = 100 bank-year observations), together with a post-sample assessment of the sector's extraordinary deterioration through 2024–2025. Profitability is measured by return on assets (ROA), with return on equity (ROE) and net interest margin (NIM) used as robustness checks. Results show that capital adequacy and management efficiency significantly enhance profitability, while asset-quality deterioration and non-performing loans (NPLs) exert strong negative effects; liquidity management and bank size are largely insignificant, pointing to inefficiencies in deployment and scale. GDP growth is statistically negligible within-sample and inflation shows mixed effects, underscoring structural weaknesses in financial intermediation. A winsorization check (1st/99th percentiles) confirms that the capital-adequacy and NPL effects are stable to outlier treatment, while the management-efficiency effect is more sensitive. Extending the analysis with Bangladesh Bank, IMF, and World Bank data through 2025 shows that the sector-wide NPL ratio rose from below 10 percent in 2023 to more than 30 percent by late 2025, alongside a collapse in aggregate capital adequacy a trajectory consistent with, and considerably amplifying, the credit-quality channel identified in the panel results. The study contributes methodologically by applying PCSE in a South Asian context, and offers policy implications for strengthening credit discipline, addressing regulatory forbearance, and improving banking efficiency.
Md. Jahidul Islam, M. Moniruzzaman, A. Haq et al.· Global Disclosure of Economi...· 0 citations
Foreign Portfolio Investment (FPI) plays a vital role in deepening financial markets, enhancing liquidity, and integrating emerging economies like India into the global capital system. Unlike Foreign Direct Investment (FDI), FPI involves short-term, non-controlling investments in equities, bonds, and hybrid instruments, making it sensitive to global economic, financial, and political conditions. This study examines the determinants of Net FPI inflows into India across pre-COVID (April 2012–March 2020) and post-COVID (April 2021–March 2025) periods, highlighting shifts in investor behavior and market dynamics.
Using monthly data from RBI, NSDL, NSE, MOSPI, Bloomberg, and S&P Dow Jones, the study applies the Augmented Dickey-Fuller (ADF) test for stationarity and the Autoregressive Distributed Lag (ARDL) model to analyze short-run relationships between Net FPI and key domestic and global factors, including inflation (CPI), industrial production (IIP), broad money supply (M3), stock market performance (Nifty 50 and S&P 500 growth), exchange rate (INR/USD), market volatility (NSE VIX and USA VIX), and the Global Economic Policy Uncertainty (GEPU) index.
Results indicate that pre-COVID inflows were influenced by past FPI trends, domestic inflation, exchange rate movements, stock market returns, and global policy uncertainty, while industrial production and S&P 500 returns had counter-cyclical effects. Post-COVID, determinants shifted toward domestic growth fundamentals, currency movements, and global uncertainty, with inflation and volatility losing significance. Global market performance, particularly the S&P 500, consistently showed a substitution effect. Diagnostic tests confirm model stability, and R-squared values indicate strong explanatory power.
The study suggests that post-COVID, foreign investors prioritize growth fundamentals and global risk over short-term domestic fluctuations. For policymakers, this underscores the importance of macroeconomic stability, clear communication, and effective risk management to attract and sustain FPI. By integrating long-term monthly data with advanced econometric techniques, the research provides actionable insights for portfolio managers, regulators, and corporate strategists navigating India’s dynamic investment landscape.
Shruti Petkar, Jinal Lathia· International Journal For Mu...· 0 citations
This paper examines the relationship between revenue diversification, profitability, and risk in European banks, with particular emphasis on the structural break induced by the COVID-19 shock. Using quarterly supervisory data from the European Banking Authority (EBA) over the period 2016Q1–2024Q4, we distinguish between pre- and post-pandemic regimes and estimate dynamic fixed-effects models that account for unobserved heterogeneity and persistence in bank performance. The results reveal a pattern consistent with regime dependence. Descriptive (quintile-based) comparisons suggest that banks with greater reliance on non-interest income tended to report higher profitability prior to COVID-19, although data limitations prevent us from confirming this pattern in a full multivariate regression for the pre-COVID subsample. In the post-COVID period, once bank and time fixed effects, persistence, and balance-sheet characteristics are properly controlled for, revenue diversification does not exert a statistically significant effect on either profitability or earnings volatility; this result is robust across bank fixed effects only, two-way (bank and time) clustered, and one-way (bank) clustered specifications. We show that diversification is systematically associated with differences in bank size, capitalization, and lending intensity, indicating that income structure is closely linked to underlying business model characteristics. These findings suggest that the observed diversification–performance relationship largely reflects cross-sectional heterogeneity rather than a stable causal effect. Overall, the evidence indicates that revenue diversification does not provide a consistent improvement in risk-adjusted performance in European banking. Instead, performance and risk dynamics are primarily driven by balance-sheet composition and persistence. The results highlight the importance of accounting for structural heterogeneity and macroeconomic regimes when evaluating the role of non-interest income in bank performance.
Ifigeneia Persaki, Fotios Siokis· Journal of Risk and Financia...· 0 citations
Abstract Banks play a vital role in a country’s financial system through their intermediation activities, which support economic development. However, the rise in non-performing loans (NPLs) has jeopardized the performance of banks in Sub-Saharan Africa (SSA). Moreover, the behavior of key macroeconomic factors and shocks to monetary policy are closely linked to this issue. This study examines the impact of monetary policy on NPLs in SSA using a panel vector autoregressive model, based on quarterly data from 23 countries spanning 2008Q1 to 2023Q4. The findings reveal that monetary policy shocks significantly affect NPL levels in SSA. Additionally, excessive domestic and external borrowing, inflationary pressures, and exchange rate volatility have substantial consequences for NPL accumulation. This study offers valuable insights into how macroeconomic factors interact to create banking stress and fragility, ultimately undermining financial stability in the region. It recommends that monetary authorities and governments implement credible monetary policies and maintain a stable macroeconomic environment to safeguard the financial sector.
Michael Asiamah, Gábor Dávid Kiss· Journal of Central Banking T...· 0 citations